David Parkins for The Globe and Mail
Politics
The HST stickmen wars
ROBERT MATAS
Vancouver— From Saturday's Globe and Mail
Published
Last updated
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Learn more. It’s the tagline on videos for YouTube and websites made by both sides in the B.C. referendum on the harmonized sales tax. The stick-men figures in pro-HST government videos and in anti-HST videos by the B.C. Federation of Labour suggest the choice would be obvious if only the facts were known.
But it’s not so easy to find straightforward, unbiased information – some of those stick men are more like straw men, flimsy arguments that collapse at the first nudge. The government’s last-minute decision to promise a reduction in the tax rate has made independent assessments difficult to find. Key information is outdated in both the official report of the HST by a high-profile independent panel and in the HST Referendum Voters Guide.
A reality check of claims made by both sides in the HST campaign shows that Premier Christy Clark's version of the HST still hurts most consumers and could cut into government revenues over the long run but will benefit large and medium-sized businesses. The HST may bring incremental improvements to the economy over the next decade.
British Columbians have a choice between two tax systems – the current HST or the previous system of provincial sales tax and federal goods and services tax. That is all voters are asked to decide. The rate of the HST is not on the ballot.
The HST, which includes the GST, is currently at 12 per cent. Previously, the provincial sales tax was 7 per cent and GST was at 5 per cent. In a bid to win support for an unpopular tax, the government has promised to lower the HST to 10 per cent in three years.
Elections BC says 3.05 million ballots are in the mail. The referendum will be decided by ballots that have been returned to Elections B.C. by 4:30 p.m. on Aug. 5. It is expected that counting the ballots could take up to four weeks, but the results could come sooner. The timing will depend on the turnout.
As those millions of voters look at casting a ballot, The Globe and Mail casts an eye over the main arguments for the HST, to determine if the stick men’s points hold up or if they are straw-man flimsy.
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Impact on Consumers: A pinch even with rebates
“Families will be better off by an average of $120 under the new 10 per cent,” a government-financed stick-man video says.
Voters, who have had their own experiences with the HST over the past year, are unlikely to put much credence in statistical averages that don’t reflect their reality.
The independent review, released in May, told British Columbians what they already saw in their wallet. Most people pay more under the HST at the current rate of 12 per cent. The review found that a family pays on average $350 more each year on routine expenditures with an HST of 12 per cent. The estimate low-balled the actual cost. The calculation did not include spending that was not routine, such as a new roof or a funeral. Anti-HST campaigners cite a study that concluded a two-parent family, with each earning $50,000, pays around $1,000 more under the HST.
The government response to the independent review’s findings was to lower the tax rate to a point where people would pay less under the HST on routine expenditures. But even at the lower rate of 10 per cent, it could take about a decade for families to come out ahead, after paying more taxes for four years.
Also, the tax is applied more widely, to hundreds of everyday items that were not previously taxed – haircuts, ballet lessons, camping and even first aid kits. Eating in restaurants often, going to movies, buying airline tickets will continue to cost more. Government rebates are available for seniors and low-income earners, but most consumers will not qualify. And no guarantee has been given on how long the rebates will be offered.
Impact on business: The (big) bottom line benefits
“10 per cent HST – $1.3-billion from your pockets to theirs,” says a stick-man message from B.C. Federation of Labour.
It’s the one issue that most observers can agree on. The HST is good for most businesses, especially for big and medium businesses. The independent review concluded that consumers this year were paying $1.33-billion more in sales taxes, after rebates and tax breaks, and business is paying $730-million less.
The HST reduces the cost of production and simplifies bookkeeping. With the provincial sales tax, business paid tax on goods and services used in each stage of production, a tax upon the tax. But under the HST, the tax is applied only when the goods are sold, or the services provided, to the consumer.
The HST has been endorsed by several businesses and business organizations, from the Business Council of B.C., which represents companies accounting for 25 per cent of all jobs in the province, to the B.C. Guide Outfitters Association.
Not all businesses benefit. Smaller enterprises and service-based companies that were not previously subject to sales tax take a hit. But many smaller businesses are agile and adjust quickly to changing circumstances. After a year of HST, small businesses may be reluctant to go back to the time-consuming bookkeeping required by the PST.
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Impact on business: The (big) bottom line benefits
“10 per cent HST – $1.3-billion from your pockets to theirs,” says a stick-man message from B.C. Federation of Labour.
It’s the one issue that most observers can agree on. The HST is good for most businesses, especially for big and medium businesses. The independent review concluded that consumers this year were paying $1.33-billion more in sales taxes, after rebates and tax breaks, and business is paying $730-million less.
The HST reduces the cost of production and simplifies bookkeeping. With the provincial sales tax, business paid tax on goods and services used in each stage of production, a tax upon the tax. But under the HST, the tax is applied only when the goods are sold, or the services provided, to the consumer.
The HST has been endorsed by several businesses and business organizations, from the Business Council of B.C., which represents companies accounting for 25 per cent of all jobs in the province, to the B.C. Guide Outfitters Association.
Not all businesses benefit. Smaller enterprises and service-based companies that were not previously subject to sales tax take a hit. But many smaller businesses are agile and adjust quickly to changing circumstances. After a year of HST, small businesses may be reluctant to go back to the time-consuming bookkeeping required by the PST.
Impact on the economy: A trickle, not a flood, of jobs
“Virtually all economic analysis finds the HST increases economic growth, productivity, wages and the quality of jobs,” the independent panel report says.
The independent panel’s report found no consensus on timing but concluded that a stronger business climate will stimulate investment and improve the economy over the next decade. Moving back to the PST/GST would hurt business and investor confidence. However, the HST is not a sudden economic stimulus plan. “It’s a tax that offers incremental benefits over time,” the panel says.
The consensus of economists indicated that the HST will boost growth by 1.1 per cent by 2020, exports by $1.2-billion and create 24,400 jobs. The C.D. Howe Institute is sticking by an earlier estimate that 113,000 additional jobs will be created over the coming decade. Critics are skeptical, saying the shift in the economy could be statistically imperceptible. It may take years to find out whether HST provided a boost to the economy.
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Impact on the economy: A trickle, not a flood, of jobs
“Virtually all economic analysis finds the HST increases economic growth, productivity, wages and the quality of jobs,” the independent panel report says.
The independent panel’s report found no consensus on timing but concluded that a stronger business climate will stimulate investment and improve the economy over the next decade. Moving back to the PST/GST would hurt business and investor confidence. However, the HST is not a sudden economic stimulus plan. “It’s a tax that offers incremental benefits over time,” the panel says.
The consensus of economists indicated that the HST will boost growth by 1.1 per cent by 2020, exports by $1.2-billion and create 24,400 jobs. The C.D. Howe Institute is sticking by an earlier estimate that 113,000 additional jobs will be created over the coming decade. Critics are skeptical, saying the shift in the economy could be statistically imperceptible. It may take years to find out whether HST provided a boost to the economy.
Impact on provincial finances: Short-term gain for long-term pain
“We are talking at the end of the day about a $3-billion negative fiscal impact to our budgets, by just making the decision to go back to the higher 12-per-cent PST/GST,” says Finance Minister Kevin Falcon.
In trying to dig as big a hole as possible in the provincial budget, Mr. Falcon has exaggerated the impact of returning to the provincial sales tax. He dug a bigger hole by putting figures from three years into one. Also, Mr. Falcon is assuming the federal government will insist on full repayment of $1.6-billion on funds paid by Ottawa to encourage the adoption of the HST, although federal politics and demands for treatment similar to Quebec may result in a more amenable outcome – and Ms. Clark has promised to bargain with Ottawa to “minimize” the amount of repayment. Also, Mr. Falcon assumed the payment to Ottawa would be made entirely in one year, which may not be required.
His $3-billion hole also includes loss of revenue from wiping out the HST. At its current rate, the HST brings in more money than the PST/GST. If B.C. brought back its provincial sales tax next year, the government would miss out on $1.2-billion over the next few years.
But Mr. Falcon overlooked the long-term impact on the treasury if the HST remains. After 2014, the HST may bring in less than the PST. Without an increase in economic growth, the HST would be cutting a big hole in government budgets, roughly $3-billion over the following five years. In other words, the reduction in the HST rate to 10 per cent could make a significant dent in provincial budgets for years. The government would be financially better off by bringing back the provincial sales tax.
