I have a confession to make. Until a few days ago, when I was invited to this Facebook group protesting the Harmonized Sales Tax (HST), I had no idea what it was. In case you’re unclear as I was, the HST combines the Provincial Sales Tax (PST, at 7%) and Goods and Services Tax (GST, at 5%) into one 12% tax. Our province plans to implement the tax on July 1, 2010.
According to Wikipedia, three other provinces have a harmonized tax: New Brunswick, Newfoundland and Labrador, and Nova Scotia. Ontario recently announced that they’d be merging their PST and GST on July 1, 2010 as well.
I thought I’d try to dig up the arguments for and against such a move:
Arguments for the HST
These come from the BC’s government’s HST site:
- “Eliminating the PST and moving to an HST will remove a significant tax burden on businesses. The PST is an outdated, complex and inefficient tax paid by both consumers and businesses.”
- Also from the government site: “A 2007 C.D. Howe Report written by Professor Michael Smart of the University of Toronto showed that, in the three Atlantic provinces who adopted HST, per capita investment rose by more than 11 per cent, total investment in machinery and equipment increased by over 12 per cent annually and consumer prices fell after the 1997 reforms.”
- “With one tax rate, one substantially harmonized tax base, and one set of administrative rules instead of the duplication that currently exists, compliance costs for British Columbia businesses is expected to be reduced by about $150 million annually.”
- “Thanks to sales tax reform, British Columbia’s overall marginal effective tax rate (METR) on new business investment will be reduced by almost 11 percentage points, a decrease of roughly 40 per cent, which will encourage new investment.”
- From a Globe and Mail article, citing Premier Campbell: “the shift [is a] major cost savings for business, which will be able to claim HST rebates in virtually all cases”.
- Again from the Globe: “The federal government will pay $1.6-billion to B.C. for transition costs, an amount that far outstrips the actual expenses of adopting the harmonized tax.”
- From CTV.ca: “TD Bank economist Pascal Gauthier said studies show a harmonized tax does create lower prices for consumers down the road.”
From other sources:
Arguments Against the HST
From the aforementioned Globe and Mail article:
- “But the savings for business will become new costs for consumers…A slew of goods and services formerly not subject to the PST will fall under the umbrella of the new combined tax, including hair cuts, restaurant meals – and far larger expenditures such as new homes.”
- “In the Lower Mainland, where prices can easily top seven digits, buyers could end up paying significantly larger tax bills; a new $700,000 home would incur an extra $18,000 in sales tax, according to the B.C. finance ministry. “
- “B.C. finance ministry officials pointed to a 2007 study from the University of Toronto. That study found that overall consumer prices fell after harmonization, but that prices rose for shelter, clothing and footwear, making the changeover “slightly regressive.†In other words, lower income consumers were affected more than those with higher incomes.”
- NDP finance critic Bruce Ralston quoted on CTV.ca: “The biggest concern I have is that, just at a time when we are trying to come out of a recession, is this the right time to make people pay more tax for ordinary services people buy as part of their daily lives?”
- From the Vancouver Sun: “‘The news is especially grim for the restaurant industry, which is already seeing business down because of the drop in tourism’, said Mark von Schellwitz, regional vice-president for the Canadian Restaurant and Foodservices Association…’That’s going to cost our industry in B.C. annually $750 million.'”
- From a Bill Tieleman editorial in The Tyee: “So who benefits? Big business. That’s why the B.C. Business Council, the Canadian Manufacturers and Exporters and a host of other business groups are supporting the tax. The HST will transfer $1.9 billion from individuals and give that money to big business.”
- Also from The Tyee: “The HST is a highly regressive tax. That is, it disproportionately impacts lower income earners because far more of their limited income will be spent paying the tax than higher income earners.”
From other sources:
Conclusions
I’m no economist. The few economists’ opinions I could find on harmonized taxes seemed to be “short term pain, long term gain”. While the HST will be tax deductible (where the PST was not), businesses are likely to pass on costs to consumers. That will, of course, have the greatest impact on those earning the least.
There seems to be no question that it’s a business-friendly tax. I did want to question Mr. Tieleman’s assertion that it strictly benefited big business. The Sun quotes Brian Bonney, the director of provincial affairs in B.C for the Canadian Federation of Independent Business:
On the plus side will be the reduction of paperwork and the ability to deduct input credits, which will both have a “massive†impact on small businesses, he said. “Overall, this is a positive thing,†Bonney said. “But I think there are definitely some sectors in the economy that are not going to be happy with this announcement.â€Â
That suggests that small businesses aren’t unilaterally opposed to the tax.
So, what do you think? Through the history of the modern world, taxes have gone up. Assuming that taxes will continue to go up, is this the sort of tax you’d prefer?
DarrenBarefoot.com 
But for folks in professional services industry, we just don’t buy a lot of goods that have PST so there isn’t a lot of input credits. Even now, I mostly remit GST not pay it.
Knowledge economy workers are the most hooped because now we have to charge HST to all our clients which does increase the cost. In my niche, non-profits only get 50% of GST so they will get a higher cost. Plus it just seems psychologically like a brutal amount on a several thousand dollar bill.
On the plus side, as I am registered for both PST and GST, at least I can drop one process for remitting.
As a “small business” (I’m self employed writer and editor), I currently have to collect GST but not PST. Under the HST, I have to charge my clients 7% more for my services. It’s true that many of them are small business owners themselves, and may be able to claim the tax back, but when budgets are tight I suspect that extra 7% upfront may mean they look for cheaper services, or avoid hiring a professional altogether. I’m hoping someone can change my mind, but for now I see this as a tax that brings much more pain than gain.
Hey Christina
I am in the same boat as you are, but lets look at the big picture.
The businesses who hire ppl like us for their communications will now have much more cash flow as they will be savings tons on their taxes. With these extra funds they will be able to obtain additional “non essential” services.
While I also charge GST for some of my services (and not PST), I think the overall reduction in paperwork and separate tax remissions is probably wise. It would have made more sense to go this way back when the GST was introduced, as the Maritime provinces did, so all this hullaballo would have been over and done with a couple of decades ago.
I’m not overly concerned about the services thing (not offering or purchasing a huge number of them) – but the new construction thing looks like it has the potential to be pretty awful.
By my calculations, that $700,000 home is going to have an extra $29,000 tax, which is fairly awful.
I was going to break it all down here, but it was getting awfully long, so I just put it on my blog:
http://www.worldwidewatercooler.com/2009/07/30/het-up-over-the-hst/
Generally speaking, an HST is superior to separate PST and GST. But … and it’s a *big* but: GST is a broadbased goods and services tax; PST is (at least in Ontario) simply a goods based tax. At harmonization, the PST will apply to a much, much broader range of items (i.e., all services). Net result: Ontario will be awash in tax revenues. If it were revenue neutral (by reducing the rate at the same time as it is broadly applied) then it would be a very good approach. But that just ain’t gonna happen … so at the very time that Ontario is coming out of the recession, the economy will have to bear an additional tax burden. And FWIW, when the Feds (stupidly) reduced the GST from &5 to 6% and then 5%, a small (but noticeable) number of stores did not reduce the GST … my barber, for example, still adds 7% to the base charge.
join me in revolt at :
http://www.petitionspot.com/petitions/BCANTIHST
@JohnB – it sounds like you’re saying it’s a good tax because it drives a ton of revenue to the provinces. All taxes do that, the question is how they affect the people in the province. In this case, it’s looking like the lower classes will take a harder hit than the upper classes, which makes it a pretty crappy tax actually, IMO.
I completely oppose the HST, mostly because of the lack of transparency and consultation surrounding the way it was introduced. If the government could prove that it would be of long-term benefit overall, than hopefully they would have talked to the voters before making the call.
I think people are being optimistic when they believe that small business will pass any savings along to their customers. According to CFIB: “When asked what they would do with a tax cut, small businesses say that they would hire new staff, raise wages and
benefits, reinvest in their business and pay down debt.” I don’t see lower prices on the list.
wow this is confusing…….but we still cant figure out……………as a roofing company if we quote a labour contract for say $5000 currently…..labour only to a client……there is %5…under this new tax….will the exact same labour contract for 5000, now have a 12% anchor on it to our mostly residnetial private client?…….if so…..and i cant believe it…….it will hugely affect our business and drive man many services underground to the black market and to cash transaction deals………..will we suddenly be charging 12 points on a roofing labour contract???? input is appreciated.
@James Hyndman: That’s exactly what it means. It’s 12% on pretty much everything that used to be 5%. however, apparently consumers won’t mind paying a little bit extra, and business owners like yourself will happily bring down your prices to compete for the few dollars that consumers have left to spend.
James, I agree with you. I am a renovation contractor and already deeply resent being an unpaid tax collector. You and I both know how hard and risky our work is, both logisticlally and and physically. It galls me to charge and submit taxes knowing that the money is not respected by the governments. The place is staffed by too many little princes and princesses that do not know what a productive days work means. I think we should move to exempt our industry from charging and collecting any taxes. Think of the savings to government , not having to have all of those auditors looking over our shoulders.
Hansen did say this was about improving efficency, didn’t he?
now what do you do with the next 18 months of limbo while we wait for the old tax regime to return?
Whereas currently I don’t have to charge any tax at all on my creative services, I will have to charge 12%, including on photography.
Because I made less than $30k on it in a single year, I never had to charge GST. Those are the rules. And because it is a creative service without a tangible product, it is PST exempt. Good for my customers.
The new rules will slide creative services into the taxable category, meaning my customers will get snagged on the PST replacement and by way of harmonization, they’ll have to pay the GST component as well, even though I’m not making over $30k.
Since I am currently exempt from charging PST and GST, this is an increase in paperwork for me and a 12% increase in cost for the consumers of these goods. It is the consumers of this that will lose, there is no doubt in my mind.
†In other words, lower income consumers were affected more than those with higher incomes.â€
Oh that’s a surprise
I hope Gordon and his buddies are wearing good luck charms ‘cos there are a Hell of a lot of curses going their way right now.
I’m vehemently opposed to the HST. I regard it as a tax grab enacted to help Gordo’s chances of having a not-too-hideous Olympic defecit.
1) The money isn’t going anywhere useful. I see no reason to be told I have to cough up more as my government shovels buckets of loot out the door to contractors and cronies while shutting down health services.
2) The history of this government is that money taken in tends to be money wasted. Witness the carbon tax on gasoline: A good idea rendered useless because Campbell throws the money into general revenue, not a green initiative fund, for example.
3) We’re in a recession: The small businsses who are supposed to be saving all that administration cost will lose margin customers, possibly making the difference between profitablility and not.
4) We’re in a recession. Prices will definitely go up in the short term at least. People will withold spending as a result: Way to keep the economic engine turning.
Finally the most important thing:
This government campaigned on a promise of “no new taxes”.
They’re breaking that promise with egregious cynicism, and should be punished for it. Bastinado is about right, as far as I’m concerned.
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