HST—yes or no?

British Columbia can’t afford to make itself less attractive for new business

This subject is almost too hot to touch! Ouch! The publication Beyond Numbers, published by the Institute of Chartered Accountants of British Columbia, says this about the HST: “Perhaps never before have three letters been viewed with such contempt and misunderstanding. Despite the fact that a value-added tax system is widely recognized as good tax policy, it seems the debate about the HST has focused on everything but its value as a tax policy.”

So what has happened to public opinion? In October 2010 an Angus Reid survey indicated that the outcome of the referendum would be 72 per cent against; however, by December that year the number was down to 64 per cent. In the same period those supporting the HST rose from 21 per cent to 30 per cent. Why the change? People had time to digest the idea and check out the arguments of those who oppose the HST. The three most important arguments against the tax were: (1) it will lead to higher consumer prices across the board; (2) price reductions realized by business will be pocketed as profits with no benefit to the economy or to consum-ers; and (3) the benefit will be enjoyed only by big business while low-income people will be adversely affected.

Beyond Numbers explains that in the last eight months economists have analyzed data on the real impact on the economy because of the tax and now there is a clearer view of what has really happened. Well-known economist Jon Kesselman in his report Consumer Impacts of B.C.’s HST provides facts used by Beyond Numbers to provide answers to the previously mentioned three arguments against the tax. His data shows: (1) since the tax was introduced in July 2010 the consumer price index grew by only 0.6 per cent—this computes to the reality that as consumers we are paying $1 more on every $165 of our expenditures; (2) many businesses have already passed savings along to their customers, and prices for a wide variety of goods and services have fallen; (3) the consumer data finds that lower income households spend most of their money on categories of consumer goods and services that have experienced small price increases, while higher income households spend more in areas with large price increases. For the lower income person it appears the combined tax has not created a notable hardship.

The article did acknowledge that the HST “has had a negative impact on the bottom line for some sectors.” This would include those involved in the food and service industries. Apparently only 17 per cent of goods and services are newly taxable by the extra seven per cent from the old system where they were exempt from PST. If you are in the sector now taxed higher, this creates a problem requiring either higher overall sales prices or accepting a lower bottom line, neither being a situation one wants to wrestle with.

Those who advocate that this tax should never have been implemented without much more forethought, especially a serious study of its ramifications, have legitimate concerns. But other than a sense of gratification to the dissenters, going back to the old two-tax system would have some very negative effects. The economy would suffer as the provincial government would have to struggle to reinstate the provincial sales tax system. Also, from a prospective investor’s point of view, it would appear we are not very stable as a province if we can’t decide how to run our own tax system so our reputation as a good province to do business in would be damaged.  

We can’t afford as a province to make ourselves less attractive for new business. There is an interesting report in CAmagazine entitled Canada Gets More Tax-Friendly for Business that says: Canada has the second lowest tax cost for businesses among 10 countries studied by KPMG. This ranking reflects a story that’s often untold outside the tax and accounting world—Canada’s trend toward corporate tax cuts over the past few years. These include recent cuts to both federal and provincial corporate tax rates, the elimination of capital taxes and some payroll taxes, plus the new Harmonized Sales Tax (HST) in Ontario and B.C., another business-friendly tax change. Tax incentives such as R&D credits also help to boost Canada’s ranking in the report.

So there we go. The “hot potato” subject has been tossed out for your response and hopefully it will not be tossed back. I hope the details contained in this article provide a more educated view of the ramifications of the dreaded HST.