I’m Trying To Learn About BC’s Harmonized Sales Tax
July 30th, 2009, 16 Comments »
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 The PST is an outdated, complex and inefficient tax paid by both consumers and businesses.”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.”
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?