My last column on HST generated, at last count, 210 comments (most of them in strong disagreement) and a number of e-mails, some questioning my parentage, my politics and my sanity. Others congratulated me for a great article, but they advised me to seek a bodyguard for my protection.
In this column I’ll address five of my favourite comments.
Every writer has biases. Here are mine: I’m not a thug or a propagandist for the B.C. or Ontario Liberals. Over my lifetime I have voted for the federal Liberals, the federal PC party, the Socreds, the B.C. Liberals, the Ontario NDP, the Ontario Tories, the Rhinoceros party and, once or twice, “none of the above.” I couldn’t care less which party brought in the HST. If it’s a good tax that keeps businesses employing Canadians and it helps pay for our spiralling health care and education costs, I’m for it.
I agree the B.C. Liberals did a pathetic job of introducing the tax. It should have been an election issue or debated in the legislature. Said one reader: “It’s not so much the tax, it is lying about the tax that sticks in everyone's throat.” Said another: “The issue is about how the tax was brought in, that the government lied about it.”
The optics of announcing the new tax a week or two after winning the election, and without campaigning on it, are not good. Someone should lose their job over how this was done, and if the polls have anything to say about it, someone will.
Now that I’ve dealt with 180 of the comments, let’s turn to the ones about the tax itself. Lets assume, at least in B.C., that it was debated in the legislature and not brought in by the current premier or the current party. Like Joe Friday said, lets just look at the facts:
1. “It’s not fair to the poor and the unemployed. Lawyers and economists can afford this tax. A lot of the rest of us can't.” Actually, if you do the math, low income British Columbians are actually better off under the HST system than under the old PST regime. Lets run some numbers to prove it. Under the PST system, British Columbians whose annual income was $15,000 or less, received a $75 PST credit (not cash) when they filed their annual income tax return. And this $75 PST credit declined by 2 per cent of gross individual income above $15,000 a year, meaning you received no credit once your taxable income reached $18,750.
There’s a similar credit with HST. But under HST, more low-income earners will receive more money. First, the income threshold at which the credit starts to be “phased out” is higher for the B.C. HST credit ($20,000 for single individuals, and higher still for families with dependents).
Second, the credit is $230 a year, not $75 a year as it was with the former PST credit. In other words, the HST credit is more than three times that of the current PST credit. And the HST credit is indexed to inflation. The PST credit wasn’t.
Third, this $230 HST credit is paid in cold hard cash, in advance, every quarter to qualifying individuals. This means qualifying individuals began receiving $57.50 every quarter starting July, 2010. They then receive an additional payment of $57.50 in October, January, and April. Compare this with the $75 PST credit that is only creditable once a year, and was applied against any income tax owing by the individual. So if there’s no HST after Sept. 14, 2011, I guess there’s no more $230 a year in cash to low-income earners, is there?
What would you rather have? A $75 tax credit, or $230 cash in your jeans?
2. “The HST has shifted a huge tax burden from business to middle-class consumers – the people who really pay the bills in B.C.” Personal income tax rates for “middle class consumers” have decreased 25 per cent across the board since 2001 in B.C. What this means is that if you live in B.C. and you earn less than $115,000 a year, you pay less income tax than an Albertan earning the same amount because Alberta has a flat 10-per-cent tax. And if you earn less than $71,719, you are paying substantially less provincial income tax in BC than an Albertan who earns the same amount.
So when someone complains about the HST being a middle-class “tax grab,” that person should also know that the “middle class” in B.C. is paying far less income tax in 2010 than it did in 1999. I’m pretty sure the middle class doesn’t want its provincial income tax to go back up 25 per cent, does it?
3. This tax rewards large companies for exporting jobs and raw resources to countries like India and China. But because all companies (large and small) will be able to claim the input tax credits on the additional 7 per cent or 8 per cent of HST (depending on whether you’re in B.C. or Ontario), businesses are more likely to keep jobs in HST jurisdictions than export them. The elimination of PST and its replacement with the HST is designed to keep businesses in Ontario and B.C. because they don’t have to swallow the 7 per cent or 8 per cent PST any more.
It’s also designed to help budding (and experienced) entrepreneurs to start their own businesses and hire more people.
Consider the following (again, doing the math): You’ve just been laid off from your job because of the economic downturn and you decide to start your own business. You go out and spend $3,000 to purchase a new computer, printer and software. Under the PST system, the province would charge you an additional $210 in sales tax, regardless of the fact you haven’t even started your business and you haven’t earned a penny.
But under HST, the government still charged you $210 in sales tax (the 7 per cent in B.C.) on top of the 5 per cent GST, but because you’re buying the computer, printer and software for purposes of gaining and producing income — that is, you’re buying it for business purposes — the government gives the $210 back. You are only taxed once you have started your business, earned a profit, and then taken the profits out of your business to spend on goods and services for personal consumption.
4. “This is a massive tax grab taxing us to death…” The HST is revenue neutral for the B.C. provincial government. If anything, there is some concern that the switch from PST to HST may actually reduce the total sales-tax revenues the province receives in the first few years following harmonization. This is why the $1.6 billion in financial assistance from the federal government was so important to the province in order to convince B.C. to harmonize with the GST/HST.
Virtually all goods that individuals purchased in BC under the old PST were already subject to the 7 per cent sales tax, as well as key services such as telephone, long distance, cable, and repair services. The only significant change is that “pure” services — such as haircuts, restaurant meals, and accounting and consulting services — will become subject to the additional 7 per cent provincial tax under HST. However, barbers, restaurateurs, and accountants will now be able to recover the 7 per cent sales tax they pay on their inputs, thereby reducing their costs of delivering these services.
Yes, it is naive to assume you’ll see the cost of your haircuts or dining out drop by 7 per cent, but to describe HST as a “massive tax grab” is a gross exaggeration. HST will result in British Columbians paying 7 per cent tax on about 20 per cent more of the goods and services they purchase — that’s 7 per cent of 20 per cent, or about 1.4-per-cent more. But if I had a choice between a 1.4-per-cent increase in the amount of sales tax I paid versus paying 1.4-per-cent more in income tax, I say tax me when I spend my money (sales tax), not when I earn it (income tax).
If you don’t tax me when I earn my money, I can choose to pay down my debt or save my money, and therefore pay no tax, but if you increase my income tax, I pay tax regardless of what I do with my money.
5. My favourite comment: “Best editorial I've read yet on HST … but as a resident of Ontario whose business is in direct competition with companies in BC, I would welcome the new businesses that would end up in Ontario if B.C. repeals the tax. So come on BC, repeal that tax!”
This comment was echoed by Ontario Premier Dalton McGuinty, when he said “there's no doubt about it, it would give us (Ontario) a competitive advantage.”
HST benefits average working British Columbians because it means businesses will now choose to locate their operations in B.C. as opposed to elsewhere in Canada and will bring the jobs that come with them. When Ontario announced it was harmonizing with the federal GST/HST and eliminating its sales tax, it gained a significant tax advantage over B.C. If BC had not followed suit to eliminate PST and harmonize with the HST, there would have been a significant incentive for businesses – particularly hi-tech and the film industry – to relocate or choose to locate in Ontario. (The computers, software, computer servers, and equipment used by these industries are all subject to PST.)
If that had happened, these businesses would have taken all of those jobs along with them. So if you’re in B.C.’s busy film industry, or its high-tech sector, your jobs could well have moved to Ontario had B.C. remained a PST jurisdiction after Ontario became an HST province.
The final benefit of HST over PST is that we’ll become an even better jurisdiction than the United States to do business in. The United States remains the last country among all the OECD member nations to impose sales-and-use taxes (PST) as opposed to a value-added tax (HST).
HST gives British Columbia, Ontario and other HST jurisdictions in Canada a significant competitive advantage over the United States. If you’re a foreign company looking to do business in North America, with HST, British Columbia and Ontario suddenly become very attractive alternatives to Washington State, California, New York, or anywhere else in the lower 48 where business has to swallow the state and local sales tax and not get anything back for it.
Attracting foreign investment to British Columbia not only brings high-quality, well-paying jobs to the province, but for the provincial government, it generates tax revenues that help pay for education and health care and all the things everyone expects government to do.
As I promised, those are the facts.
Special to the Globe and Mail
Vancouver franchise lawyer Tony Wilson is the author of Buying A Franchise In Canada – Understanding and Negotiating Your Franchise Agreement and he is ranked as a leading Canadian franchise lawyer by LEXPERT. He is head of the Franchise Law Group at Boughton Law Corp. in Vancouver and acts for both franchisors and franchisees across Canada, many of whom are in the food services and hospitality industry. He is a registered Trademark Agent, an Adjunct Professor at Simon Fraser University and he also writes for Bartalk and Canadian Lawyer magazines.