Monday, July 27, 2009

HST - A taxing surprise

In a surprise move on Thursday, July 23, the B.C. government announced it would harmonize the provincial sales tax (PST) with the GST. The Canadian Taxpayers Federation had been told by the finance department about a year and a half ago there was no way the B.C. government would harmonize the sales tax because it would hurt some of the Liberal party's biggest support groups, such as restaurant owners.

As late as May 2009, the B.C. Liberals apparently stated they would not harmonize the sales tax. It seems this was yet another "from on high" snap decisions, like the carbon tax, made with no consultation.

Unlike the carbon tax, however, the harmonized sales tax, or HST is, in theory at least, a positive tax reform.

Harmonizing the sales tax system simplifies our overly complicated tax system, and any reform that does that is a good thing.

The HST eliminates the PST on business inputs, things like machinery, equipment, and supplies, and that will make B.C. a more competitive place to invest. That will attract new investment and help make existing businesses more competitive and productive. That will boost the provincial economy over time.

Lower business costs and more productive companies should eventually lower prices to consumers and mean more jobs and higher wages.

There are a couple of problems, however.

First, the HST in B.C. still has a number of exemptions, and exemptions defeat one of the main benefits of the HST - a simpler tax system.

The bigger problem, however, is it will raise prices to consumers, at least in the short term, as almost everything we paid only 5% GST on before will be hit with the entire 12% HST as of July 1, 2010. Things like restaurant meals, new homes costing over $400,000, newspapers, accountant's fees, and home renovations will be more expensive.

But, as business costs fall, those prices should fall as well.

Meanwhile, one way to help families bear the burden of higher prices would be to lower the PST. That's what the Atlantic provinces did when then introduced the HST. But a much better option would be to increase the basic personal exemption on our income tax. Right now, the basic personal exemption in B.C. is $9,373, but it is $16, 775 in Alberta and even $12,945 in Saskatchewan.

The premier has said the HST was necessary now to be competitive with Ontario, which is also implementing its HST on July 1, 2010. But why do we want to be competitive with a province that's fallen into 'have not' status anyway? Why not be competitive with the province right next door -- Alberta? It has no PST at all and a higher basic personal exemption.

Ultimately, taxes are paid by people, not businesses -- business taxes are hidden in the cost of products. This reform creates a more transparent tax system.

Governments get revenue from taxation, and reforms that help people better understand the link between the taxes we pay and the services we receive from government will put pressure on government to reduce wasteful spending and be more accountable to the people left to pick up the tab -- the taxpayer.

2 comments:

PeterB said...

http://www.youtube.com/watch?v=atiLnxSKmec


#4 comedy video in Canada yesterday - pulp fiction parody.

Post this video on your blog and share it with friends. The only way to stop the HST is to show
what a joke it is.

Anonymous said...

The tax system in BC really isn't that complicated and businesses will not save that much money going from the split taxes to the HST. This whole article is a load of propaganda.

The only thing this tax will do is hurt the consumer.

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