With the harmonized sales tax (HST) referendum now taking place in British Columbia, it occurred to me that the debate hasn’t really included newer voters, namely those between 18 and 25 who may already be in the work force or in college or university and planning to be in the work force when they graduate.
I’d imagine that a fair number of these voters expect to be in business one day soon, either working their way up the corporate ladder for small or medium-sized businesses, or using their entrepreneurial chutzpah to start new businesses themselves.
If those already in the work force with grey hair, jobs, pensions and mortgages have more or less made up their mind about the HST in B.C., I’d like to direct my comments today to this future generation of business owners, managers and employees.
Why should the HST matter to you and your generation?
First, if the HST referendum fails, and the provincial sales tax (PST) is reinstated, the most significant thing your generation will lose is opportunity.
Your generation will lose the benefits to the province predicted by the independent HST panel chaired by former Alberta Finance Minister Jim Dinning. It forecasted that at least 24,400 new, better-paying jobs would be created in B.C. as a result of the HST, and that it would lead to a $2.5-billion larger economy and $1.5-billion more exports.
The C.D. Howe Institute released a report on June 29 which was even more optimistic, noting a study by Jack Mintz of the University Of Calgary School Of Policy Studies that predicted more than 113,000 new jobs would be created in B.C. as a result of the HST that otherwise wouldn’t be created under the PST system.
So all of you will lose the potential benefits to the economy that two independent organizations have predicted as a result of moving away from the PST to the HST.
Second, Alberta, which has no sales tax, and Ontario, with the HST, will attract some of B.C.’s managerial and entrepreneurial talent who may well vote with their feet and leave B.C. because it will be more expensive to do business here than in Ontario or Alberta. Some of the people moving to Calgary or Toronto may be you.
It’s great to ski and sail in B.C., but you can’t eat great scenery and recreation. If your employer, or the new business you want to create, gets higher tax credits for its business inputs, only has to file one tax return and not two, and doesn’t have to pay sales tax on top of sales tax on top of sales tax, (which the BC PST requires businesses to do), it makes business sense to move your businesses, employees and future to Ontario, where even the premier admits his province will be the happy beneficiary of the HST failing in B.C.
Third, by promising to lower the HST to 11 per cent in 2012 and 10 per cent in 2014, the HST will be two percentage points lower than Ontario’s rate in three years. In fairness to former B.C. premier Bill Vander Zalm, if there’s anything he accomplished (besides unseating a sitting premier and opposition leader), it’s getting the tax lowered. And it’s not just lowered to 10 per cent on those things that were previously not taxed under the PST; by federal law, it’s lowered to that figure on all goods and services by 2014.
Fourth, you’ll lose in terms of income tax increases or social-service reductions. B.C. received $1.6-billion from the federal government for transition costs. There is no reason why a majority government in Ottawa is going to settle for not being repaid or otherwise settling on being paid something less.
If I were a taxpayer in Ontario or Saskatchewan whose taxes contributed to this payment to B.C., I’d be outraged if Ottawa waived or otherwise settled on this amount. It must be repaid and B.C. taxpayers will have to find the money to repay it if we return to the PST.
One of these taxpayers will be you. Another may be the business you want to start.
Fifth, you’ll risk losing expensive but important public services that government won’t be able to afford because the tax base will be too small by simply taxing income.
It’s a demographic time bomb, and it’s best illustrated by looking at the demographics of health care.
The Canadian Institute for Health Information stated that in 2007, the average annual expenditure on health care per person for people aged one to 64 was $1,996. The average expenditure for those over 65 was $10,318.
Add to that the fact that expensive surgical procedures are expected to keep boomers like me alive until well past 80; it’ll be my daughter’s generation that will end up paying far more for my generation’s health care costs than they could ever imagine. God knows what will be left for her and her kids unless new sources of revenue are found.
The tax base to pay the enormous health care and related social service costs of older British Columbians is shrinking as the baby boom generation stops working and enters retirement. When the tax base is smaller because there are fewer people paying income tax at higher rates (with so many people retired and living off pensions or retirement income, which is taxed at lower rates), it will be left to a much smaller pool of younger people to make up the difference in income tax revenue to maintain our social services.
So unless income and other taxes are disproportionally higher for this smaller group of younger taxpayers in 20 or 30 years, or a new source of tax revenue is found, there’ll be less money available for the things my daughter’s generation might actually expect from government, such as health care and education for their children. Without a broad-based consumption tax on services, high corporate and income taxes won’t generate enough revenue for government to do the things we expect it to do.
It’s all well and good for the anti-HST naysayers with grey hair, pensions, jobs and mortgages to complain oh-so-loudly about the additional tax they’ll now have to pay on restaurant meals, dance lessons and haircuts, but without raising more money from the taxation of services, the income tax burden that your generation will pay 20 or 30 years from now will be absolutely unbearable.
Without taxing services, like the HST does, there will be little money left for your generation to fix the roads that need fixing, deal with global warming and remediate the environment, let alone provide your own kids with a good education and adequate health care.
I’ve explained to my daughter that she should see a vote for the HST as an “intergenerational insurance policy” that will protect her generation from the enormous financial demands of mine.
However, she sees it as “intergenerational middle finger” for those in their twenties not wanting to metaphorically pay buckets of their tax dollars to “change my generation’s diapers in the nursing home” in 30 years time at the expense of their own priorities for government.
The irony of the debate in B.C. is that the HST isn’t a tax that Gordon Campbell and the B.C. Liberals evilly concocted one night to give all of their rich Howe Street business buddies huge tax breaks at the expense of the ordinary working person, as some adamantly believe, and many on the left publically promote.
It’s actually embraced by the left. The HST is modelled on the value added taxes (VAT) that are prevalent in Europe, Australia and New Zealand and which are part of the social democratic landscape there, not to mention being a valuable tool for raising revenues to pay for health, education and other social services.
Although Centre For Policy Alternatives economist Iglika Ivanova thought the benefits of the HST were oversold in B.C “as an economist, I agree that value-added taxation is an improvement over the current retail sales tax system used in both B.C. and Ontario.” she has said in The Progressive Economics Forum.
Left-wing Simon Fraser University economics professor Krishna Pendakur, wrote a piece in The Tyee called “Four Reasons Why the Left Should Love the HST” in which he makes some of the same arguments I have in these columns about the benefits of the HST.
Jim Stanford, the respected Canadian Auto Workers economist and Globe and Mail columnist, had some good things to say about Ontario's HST in an analysis he did. The union didn't come out and support the tax but Mr. Stanford recommended the CAW stay out of the protest against the HST in Ontario.
Mr. Stanford said the introduction of the HST in Ontario was not a “tax grab” and was “more efficient and less harmful than the PST.” He said it was “spreading the sales tax burden across all sectors” of the economy.
In four other provinces where there is an HST (Quebec, Nova Scotia, New Brunswick and Newfoundland), "there has been no measurable negative impact on consumers or the fairness of the tax system resulting from the replacement of the previous PST with the new HST," he said.
“Political opposition to the HST,” he also said in the analysis, “does not reflect a well-considered call for a fairer tax system. It’s more about electoral gamesmanship by opposition parties eager to damage the current government. When the anti-HST coalition tries to tap into knee-jerk anti-tax sentiments to win more votes, it also encourages a regressive, potentially dangerous attitude to government and the public services those taxes support. We’ll pay dearly for that kind of attitude in coming years.”
Although he was directing his comments to Ontario, and not B.C., what he went on to say is interesting: “I do not recommend that CAW locals, retired worker chapters, or activists participate in the various anti-HST activities which will be organized by the opposition parties in coming months….I have consulted with the members of the CAW’s National Executive Board, with public sector union leaders, with progressive tax and social policy experts, and with my colleagues in the CAW research department. Most share my concern that the anti-HST campaign, by tapping into a conservative anti-tax sentiment, risks doing significant damage to our social programs (and the tax base for those programs).”
So when you’re considering your options during the debate, check out all of the information, data and arguments in favour of returning to the PST, and critically assess it. Separate the fact from the fiction and don’t make a knee-jerk decision. Appreciate that it’s not just the business community that supports the HST, but that it has support in the unions and among left-wing economists as well. So there must be something about the HST that transcends political ideology.
And remember, if you understand the benefits of the HST but hate the way it was brought in, then you can always vote the B.C. Liberals out of office come election time.
But without the HST, your generation has much to lose.
Special to The Globe and Mail
This article has been corrected from an earlier version.
Tony Wilson is a franchise and intellectual property lawyer at Boughton in Vancouver, and he is an adjunct professor at Simon Fraser University. His newest book, Manage Your Online Reputation, was published in November.
Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT