Completely axing the controversial harmonized sales tax to bring back the former provincial sales tax would cut $5-billion in annual revenues for B.C. and force program cuts as well as “dramatic” increases in income tax and other levies, according to Finance Ministry documents.
The grim scenario outlined in material obtained by The Globe and Mail through a freedom of information request is at odds with the milder arguments in favor of the HST that have been advanced by Premier Gordon Campbell and Finance Minister Colin Hansen.
“Dramatic increases to existing taxes would be required to maintain expenditure levels,” says an adviser’s submission from the ministry’s tax policy branch to a deputy treasury board official.
The submission, dated Aug. 30, also forecasts the doubling of personal income taxes, an eightfold increase in residential school property tax and a sixfold hike in motor fuel tax rates. And the $5-billion hit would result in “substantial increases to other provincial taxes, dramatic cuts to provincial programs and expenditures or a combination of tax increases and expenditure reductions,” the document says.
In an interview Wednesday responding to the material, Mr. Hansen said he stands by the analysis, but he said the government has yet to disclose it for fear of being seen as excessively alarming voters ahead of next year’s referendum on the HST.
At the same time, he said, “there’s information in there that we want to make sure people are aware of before they make their decision on how to vote next September.
“A lot is a question of what’s the best way for this to come out. We wouldn’t want people to interpret it, somehow, as us threatening dire consequences if they decided to vote against it. We don’t want to have a tone that’s sort of threatening people.”
However, he said John Les, the recently appointed parliamentary secretary on the HST, would be getting into some of the ideas in the material as part of his responsibilities.
Political scientist Norman Ruff said the documents appear to lay out a “sky-is-falling” scenario of such magnitude that the government may fear it would be accused of political exaggeration if it made the material part of its pro-HST arguments.
“Given the level of mistrust in the government, that’s something they could particularly ill afford,” the professor emeritus at the University of Victoria said.
The material certainly predicts severe far-flung complications.
The author of the Aug. 30 submission also warns of “significant/time-intensive” talks with Ottawa to draft rules to phase out the HST, and “significant legislative amendments, including very complex transitional provisions” at the federal and provincial level.
It predicts the need for a “costly” refund system for businesses and consumers. “This would be exceedingly difficult to do in a fair way because many consumers do not retain receipts and a refund system would be very expensive to administer.”
And there are “very limited” alternative sales-tax models available to replace the HST that would, in any event, be challenging to impose and no more loved than the HST, the assessment says.
“Introduction of a different broad-based sales tax would require significant time (years) and resources to design and implement and would likely be as strongly opposed as the HST,” it says.
Scrapping the HST would also have a potential impact on federal-provincial relations, says the document, including the need for “significant/time-intensive” talks with Ottawa to figure out how to phase out the tax.
A Sept. 30 e-mail from the Treasury Board deputy secretary to an assistant to Mr. Hansen warns of possible legal action by businesses that entered into contracts on the basis of HST input tax credit models, the cost of refunds for collected HST revenues, and additional costs to reverse administration and systems changes.
There is no detailed breakdown explaining the projected $5-billion figure.
