On May 26, B.C. Premier Christy Clark announced significant changes to the harmonized sales tax (HST), which may remedy some of the damage done to the public's faith in government when its introduction was botched by former premier Gordon Campbell.
Here's what changed.
If the HST survives after the mail-in referendum that starts June 24, the rate will go down to 11 per cent on July 1, 2012, and down again to 10 per cent on July 1, 2014, at which time, B.C. and Saskatchewan will have the lowest combined sales tax rates in Canada – leaving aside Alberta, which doesn't need a provincial sales tax because it's awash in oil.
Additionally, families in B.C. will receive a one-time payment of $175 per child to deal with the extra expenses they have incurred since the switchover to HST. B.C. seniors will also receive $175 if their net family income is $40,000 or less, and if their income is between $40,000 and $50,000, they will receive a partial rebate.
To offset the loss in provincial revenues caused by the HST's reduction, and so that the B.C. government can maintain expenditures in health care, education and social services, B.C.'s corporate tax rate will increase to 12 per cent from 10 per cent, the argument being that if the HST is such a great thing for businesses, then they should shoulder more of the tax burden, deflating the opposition's arguments that the tax is a simply a windfall for corporations.
It isn't, but because some people think it is, business will pay more tax. That's politics. But it's also public relations, or lack thereof. If the business community had its act together on the HST file earlier, instead of allowing the debate to be hijacked by Bill Vander Zalm and FightHST, perhaps we wouldn't be in this situation.
Reducing the HST to 10 per cent would put more money in the wallets of all British Columbians. The independent panel chaired by former Alberta finance minister Jim Dinning that was charged with reviewing the HST in B.C. concluded that a 12 per cent HST would cost British Columbians an average of $350 a person per year.
By reducing it to 10 per cent, the math works in favour of consumers. A 10-per-cent HST will result in a net benefit of $120 a person per year. That's right: British Columbians will be $120 a year richer under a 10-per-cent HST than under a 12-per-cent GST plus PST, which is what Mr. Vander Zalm and the opposition New Democratic Party want to go back to.
The reduction may make the HST palatable to more British Columbians. And it shows Ms. Clark may be a more astute politician than her predecessor, who probably should have brought the tax in at 10 per cent from the get go.
It also puts the opposition New Democrats in a real bind by forcing them to support going back to a higher sales-tax rate that always gave "big business" exemptions from paying PST on forestry equipment, mining equipment, and production machinery and equipment used by manufacturers. In short, they'll be supporting tax breaks for big business and a higher rate for consumers.
Mind you, if B.C. voters decide to return to the PST regime and do away with the HST, then PST will be reinstated at the old rate of 7 per cent. It won't go down by two percentage points within three years like HST will. And there won't be a $175 cheque per child or for seniors delivered just in time for the holidays. And, of course, the HST rebate cheques to low-income British Columbians of up to $230 a year will be replaced by a $75 PST tax credit.
Sounds like a no brainer to me. What part of this is Mr. Vander Zalm and FightHST not getting?
In fairness to Mr. Vander Zalm – for whom I actually voted once – orchestrating the resignation of a sitting Premier and causing his replacement to lower a tax by two percentage points is a pretty big accomplishment, and one that will be studied by Canadian politicians and academics for generations to come as an example of "how not to introduce a tax."
But with Mr. Campbell gone and a lower tax rate coming, isn't it about time for Mr. Vander Zalm to collect his marbles and go home before he loses them? Isn't it about time for him to stop telling pensioners that HST is a step toward "world government," that Brussels will soon be setting our sales-tax rates, and that B.C. Finance Minister Kevin Falcon is in a conflict of interest over giving each child in B.C. $175 because he has a new baby and stands to gain?
Good grief. Where are the business leaders and elder statesmen and stateswomen of the province when you need them? Why aren't retired politicians like Mike Harcourt, Glen Clark, Ujjal Dosanjh and Stockwell Day – all of them smart people – not stepping into the debate for the good of the province and commenting on Mr. Vander Zalm's assertions (or, at the very least, helping him with his arithmetic)?
British Columbians may not like the tax very much, but they may be starting to realize that staying with the HST is a better alternative than the cuts to social services and the income-tax increases that residents will have to bear to repay the federal government the $1.6 billion it will owe for HST transition costs. Mr. Vander Zalm and his supporters are ignoring this very large elephant nonchalantly sitting in the back of the room.
It's a massive elephant. It's a massive debt obligation. It's a massive problem.
As much as he might want to wish it away, to pretend it doesn't exist, or to expect the federal government to settle for a song, there is no political reason why a newly elected majority government in Ottawa will feel motivated to do so when it must also look to protect the other taxpayers of Canada, who paid for B.C.'s transition to HST. If I lived in Ontario or Nova Scotia, I'd be outraged if a deal was struck by Prime Minister Stephen Harper to forgive and forget BC's $1.6 billion HST debt.
Mr. Harper knows this. It's not going to happen.
Regardless of what political party is in power if we return to PST in B.C., provincial income-tax rates and government user fees will rise, education and health budgets will be cut, and a host of social-service budgets will be affected to pay for this shortfall. And unfortunately, B.C.'s economic growth may be stymied for a decade.
The economy won't expand by $2.5 billion, it won't have produced $1.2 billion more in exports of goods and services, and the province won't get those 24,000 better paying jobs by 2020 that have been predicted by Mr. Dinning's independent panel mandated to review the HST in B.C. We may look a little more like Greece or Portugal when all the investment dollars and jobs that otherwise would have come to B.C. flow to Ontario and Alberta instead.
Again, what part of this is Mr. Vander Zalm not getting? Or is he so happy to be back in the limelight again that he'll say anything to get on TV and in front of a crowd? Even if it's blatantly wrong or misleading?
The HST referendum will begin in B.C. in just over two weeks. It's time to scrutinize the FightHST message as much as the messengers, who've been getting a free ride on the anti-Campbell sentiment in the province for the past year.
We need to be a bit more like CBS reporter Katie Couric asking U.S. vice-presidential candidate Sarah Palin some really tough questions.
How about these ones for starters?
- Where would the money come from to repay the federal government the $1.6 billion in HST transition costs if the tax is defeated?
- Why is a 12-per-cent tax rate better than a 10-per-cent tax rate when I will save $120 a year with a 10-per-cent HST?
- As a pensioner, what will happen to my HST rebate cheque of $230 a year if PST is reinstated?
- Why is the HST a threat to provincial sovereignty when we already count on the federal government to collect provincial income tax?
- How is HST more complicated for small business when there is only one tax form to complete, not two?
- What do you tell small-business people like Peter Oates of Carmelo’s restaurant in West Vancouver when he says he likes HST because it’s simpler and he gets more input tax credits?
- Why do you say the HST is a windfall to “big business” when “big business” always had exemptions from paying PST on forestry equipment, mining equipment, and production machinery and equipment used by manufacturers?
- Where did Mr. Dinning’s independent panel report on HST go wrong when it said B.C.’s economy will, by 2020, expand by $2.5 billion, will generate $1.2 billion more in exports of goods and services, and will have 24,000 better paying jobs under HST?
And my personal favourite?
9. Can you see Russia from your house?
Special to The Globe and Mail
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.
Tony Wilson