As of Friday it will have been a year since British Columbia instituted the harmonized sales tax, and just like Donald Trump when he was painfully hogging the U.S. political spotlight, former B.C. premier Bill Vander Zalm has been getting a little too much attention on his quest to overturn the HST, arguing it is a windfall for big companies at the expense of small businesses and the ordinary consumer. With a provincial referendum on the HST under way, I expect we'll be hearing more from him.
Interested observers should also consider the conclusions of an independent and "non-political" report released May 4 by a special HST panel chaired by former Alberta finance minister Jim Dinning. The panel concluded that "staying the course" with HST would create 24,000 new, better-paying jobs by 2020, produce an additional $1.3 billion in exports of goods and services, and result in an economy that will be $2.5 billion larger than it would have been under PST. Moreover, it stated, going back to PST would cost the province dearly in terms of competitiveness, business efficiencies and lost revenue. What's more, British Columbia taxpayers will have to pay back all or most of the $1.6 billion the federal government handed the province to make the transition, leaving a $531-million hole in the next budget.
When the HST was introduced in B.C., it was a shotgun marriage between incompetency and arrogance. The governing Liberals introduced the tax as a replacement for the 7% PST immediately after a provincial election in which the topic was never discussed, and without a post-election debate in the legislature. It should have cost someone their job, and from former premier Gordon Campbell's perspective, it did. His.
On that front, Vander Zalm was right to complain. He got the pound of flesh he wanted, as well as Campbell's head on a platter, so now it's time for him and his anti-HST partners, Bill Tieleman and Chris Delaney, to do some math and study the findings of the Independent Panel on HST, because going back to PST would be disastrous for the province.
Vander Zalm, Tieleman and Delaney have argued in their own report, "HST or PST: The Truth About Why Returning to the PST Is Better for B.C.," that HST "hurts the people least able to afford it." The special panel found otherwise. It confirmed that low-income British Columbians are better off under HST than PST. Low-income individuals and families receive an HST credit of up to $230 a person each year to offset the HST. So a low-income family of six that is currently receiving an HST credit of $1,380 a year will see that credit drop to $150 a year if the PST is resurrected. If HST fails, 1.1 million individual British Columbians who now receive the much larger HST credit will have to go back to a PST tax credit of only $75 a year.
If the HST survives the mail-in vote, the rate will go down to 11% on July 1, 2012, and down again to 10% 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 have a provincial sales tax. Additionally, families in B.C. will receive a one-time payment of $175 a 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 – if their income is more than $40,000 but less than $50,000, they will receive a partial rebate.
To offset the loss in provincial revenue 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. corporate tax will increase to 12% from 10%, the argument being that if the HST is such a great thing for business, then business should somehow shoulder more of the tax burden, deflating the opposition's arguments that the tax is a simply a windfall for corporations.
Where the independent panel set up to assess the HST found that the tax would cost each British Columbian an average of $350 more a year, by reducing the HST to 10%, the math works in favour of consumers and it will result in a net benefit of $120 a person each year for every resident of the province.
A C.D. Howe report released Wednesday urges the province to keep the tax in place, calling its introduction "enlightened tax reform." British Columbia's sales tax reform in 2010 "brought the province into the modern tax era," the report states. "The HST has improved the province's outlook for investment and growth, lightened the tax burden on low-income families, while delivering the revenue needed to finance public services."
Vander Zalm's report states that the HST "hurts businesses, particularly small and locally owned ones." But HST has simplified the tax collection and tax filing process for those business owners, who don't have to file two different tax returns to two different levels of government with two different sets of rules. Now it's one return, one tax collector, one set of rules. And no provincial sales-tax collection department duplicating what the feds were already doing with GST.
Small and medium-sized companies now get higher input tax credits based on what they buy to expand their businesses or to start new ones. If HST fails, what will life be like for those firms when they no longer receive the extra credits?
Ask people like Peter Oates, the owner of Carmelo's Restaurant in West Vancouver, an early and vocal opponent of HST who is now a big supporter of the tax. The HST, he says, "has massively simplified my bookkeeping and accounting. The fact that I now get input tax credits on the full 12% saves me money."
Vander Zalm's report also argues that the HST "hurts the economy by curbing consumption, increasing the tax burden and reducing our standard of living." Vander Zalm, it must be remembered, was the premier who introduced the Property Transfer Tax to B.C., adding thousands of dollars to the purchase of a home. Not adopting the HST will hurt the B.C. economy because new businesses will, for tax reasons, locate in HST jurisdictions such as Ontario, and that giant sucking sound you'll hear in B.C. will be the sound of businesses and jobs flowing back east.
Vander Zalm should bear in mind the prophetic words of Ontario Premier Dalton McGuinty when he was asked what would happen if the HST were defeated in B.C.: "There's no doubt about it, it will give us a competitive advantage."
Tony Wilson is a franchising and intellectual property lawyer at Boughton in Vancouver, and an adjunct professor at Simon Fraser University.
This article originally appeared in the June, 2011 issue of Report on Small Business magazine. It has been updated to reflect developments that have occurred since it was published.
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Tony Wilson