The countdown to cutting the harmonized sales tax will create both a surge and sag in economic activity across various sectors of B.C.’s economy that will make it even more difficult for the province to plan its economic course.
With about 18 months to go before the province reverts back to the old PST-GST split tax system, businesses and consumers will be plotting ways to squeeze out any benefits received from the current 12-per-cent structure.
For many business owners, that could include investing in an expansion or new equipment to save money through exemptions offered under the current HST system.
For consumers it could mean delaying renovations or building of new homes, services that have increased in price since the HST was implemented last year. A pause in activity could have a huge economic impact on those in the building and contractor business.
“As we go back to the old system, there is 18 months for people to sit on their wallets,” said Peter Simpson, president and chief executive officer of the Greater Vancouver Home Builders’ Association.
He said builders will be glad to see the HST removed, “but not happy about the impact it might have on stalling homeowners’ decisions on doing major renovations.”
The waiting period threatens to wreak havoc on provincial finances at the same time the province must pay back $1.6-billion in transitional funding to Ottawa. B.C. Finance Minister Kevin Falcon said the province will tighten operational spending but not job-creating capital expenditures, while maintaining a goal of balancing its books by 2013-2014.
The elimination of the HST could spur short-term expansion and investment in the restaurant business, an industry that largely opposed the HST when it was first introduced in the summer of 2009.
“I would expect that if you are thinking about expansion, you would accelerate plans,” said Ian Tostenson, president and CEO of the British Columbia Restaurant and Foodservices Association.
Like many business groups, the restaurant association is urging the province to bring back the old system sooner than the April 2013 timeframe.
“We need to reduce uncertainty,” Mr. Tostenson said.
Businesses should also consider other potential changes alongside the reversion to the old tax system, said Grayden Hayward, interim president and CEO of the Vancouver Board of Trade.
His organization wants the province to use the transition period as a chance to simplify the tax system for business, and in turn the province.
“They do have issues to deal with,” Mr. Hayward said. “This has created some pretty serious problems for them and they have to survive.”
The Business Council of British Columbia is also calling on the province to address economic impacts it believes B.C. will feel as it returns to the PST structure.
“There is a pressing need for government and industry to address the lost competitive advantage and efficiency that the HST provided for business and our economy,” said Greg D’Avignon, president and CEO of the Business Council of British Columbia.
“Particularly in today’s unsettled global economy, it is important that we look at all opportunities to improve our economy and grow and maintain B.C.’s reputation as a stable and attractive place to invest.”
On Sunday, Standard & Poor’s Rating Services confirmed B.C.’s triple-A credit rating in the wake of B.C.’s HST referendum, but noted there were challenges ahead including lost revenue as well as the administrative costs of moving back to the old PST-GST system.
“During this time of global economic uncertainty, our credit rating is more important than ever and we will continue to manage taxpayer dollars responsibly while we focus on strengthening our economy and creating jobs,” Mr. Falcon said in a statement.
