The endgame is approaching in the dramatic tax war that has raged since B.C. announced plans to scrap the PST in favor of a Harmonized Sales Tax (HST).
The anti-HST campaign, Fight HST, led by former Premier Bill Vander Zalm, has until July 5 to collect the signatures of 10 per cent voters of each of the province’s 85 electoral ridings. If successful, they could trigger a referendum on the tax or even attempt to recall MLAs. If they fail, HST is scheduled to become law on July 1.
The rhetoric is flying, fast and furious. HST advocates call it a “simpler, fairer, more transparent tax,” which will reduce costs for employers and help them to expand their businesses and pay higher wages. Opponents sayconsumers will lose big as many services previously exempt from the PST will now be taxed, including restaurants and real estate sales.
To help navigate the controversy, UBC Reports asked two UBC professors watching the HST issue closely to explain what’s at stake, economically and politically.
Prof. Kevin Milligan,
UBC Department of Economics
What is being proposed?
The Province hopes to amalgamate the 7-per-cent PST and 5-per-cent federal GST, creating a 12-per-cent HST.
How are the HST and PST different?
The HST is a value added tax, which means it is imposed on final consumption of goods and services. The PST is a retail sales tax, which can be charged on goods at different stages of production. This ‘cascading’ of hidden taxes can lead to very high effective tax rates for some goods, and inconsistencies. Few jurisdictions still use retail sales taxes like the PST because of inefficiencies like this.
Does the HST make economic sense?
Replacing a retail sales tax like the PST with a value added tax like the HST is advisable, generally. Several provinces have harmonized their PST with the federal GST. Investment has grown, consumer prices fell slightly, and economic activity has continued to expand.
What are the benefits of HST?
First, it levels the playing field among businesses, whether they are producing goods or providing services. Second, HST reduces administrative costs for both business and government. Third, it makes the tax more transparent as it is visible on final purchases, rather than partially embedded in prices, as it is with the PST. Finally, enabling firms to take credits for taxes they pay on capital inputs provides stronger incentive for new investment.
I can’t think of an argument in favour of a retail sales tax like the PST over a value-added tax such as the HST.
I believe the fears being voiced by HST opponents are inconsistent with what has occurred in other regions.
What’s a common HST misconception?
Some people are very skeptical about the claim that businesses will pass on their tax savings to consumers. But that is what happened in France and Atlantic Canada. Not because companies are being nice, but because they are competing for your business. Evidence suggests if B.C. consumers are careful with their retail dollars and insist on good deals from businesses, more savings will be passed on.
If passed, who are HST winners and losers?
Firms that make goods with many levels of production will win because they currently must embed much of the PST they pay in the prices they charge customers. Companies that provide mostly services will lose their tax-favoured status and face the same taxes as goods-producers.
Prof. Fred Cutler,
UBC Department of Political Science
How have British Columbian’s responded to the HST?
We are seeing general aversion to this new and renamed tax from a coalition of small-government and low-income groups – but also from service-providers whose products will be the object of a sudden tax increase. They worry about the reduction in demand for their services.
How does this compare to other tax backlashes?
The reaction in public opinion has been typical of reaction in Canada and elsewhere to new taxes. Although the HST is mostly a restructuring of tax collection, it does add slightly to a citizen’s overall tax burden, though this may well be offset by lower prices for some goods. It is especially obvious because it’s a new acronym for a tax consumers will pay on just about everything they buy.
Is B.C.’s anti-HST campaign unique?
What is different than in other places in Canada that have implemented the HST is that B.C. has legislation that makes public initiatives possible. That means people and groups who object strongly to the HST have more of an incentive to organize a campaign to channel and lead public opinion.
What’s Bill Vander Zalm’s role?
The recognizability of the former premier is important. Some people take notice of what he says, and the media reports it, so more people are likely to engage with the issue than in a province without an initiative process.
Will Fight HST succeed?
I think it’s unlikely to succeed. They can probably get the required signatures and we might well see a referendum on this initiative draft bill. But to be successful in a referendum, they need “yes” votes from 50 per cent of registered voters in two-thirds of B.C.’s ridings – and anyone who doesn’t vote is essentially counted as a “no” vote. I think the initiative will have trouble overcoming this built-in disadvantage.
What will be the political impact of the HST in B.C.?
I think the bar is set too high for the anti-HST campaign to succeed, but if it does, the NDP will very likely win the next provincial election.