British Columbia:
• Unlike any other province, B.C. will provide an automatic point-of-sale rebate so consumers do not have to pay the provincial portion of the HST at the pump for purchases of gasoline and diesel fuel for motor vehicles, including any biofuel components.
• A partial rebate of the provincial portion of the single sales tax for new housing to ensure that new homes up to $400,000 will bear no more tax than under the current PST system, while homes above $400,000 will receive a flat rebate of about $20,000.
• A refundable B.C. HST Credit paid quarterly with the GST and carbon tax credit to offset the impact of the tax on those with low incomes.
The idea that governments are trying to focus on is that this will indeed be a ‘transition’ to an HST. The idea that politicians use to make the tax shift more politically saleable is that as corporations save money in lower taxes and also the savings in administrative costs related to paying a single tax (as opposed to both the RST and GST), market forces and competition will force these corporations to pass on the savings to the consumers. Indeed, the distributional implications of harmonization depend on how much of the savings is passed on to the consumer.
Studies of the experiences of the Atlantic provinces’ move to a single tax system in 1997 revealed that there was a slight drop consumer prices, although prices increased somewhat for shelter, clothing and footwear, which tended to make the tax reform slightly regressive. However, the experiences of the Atlantic Provinces cannot be directly applied to Ontario and BC because those three provinces had much higher provincial sales tax rates (11.7 percent in Nova Scotia and New Brunswick and 12 percent in Newfoundland and Labrador), which were lowered to 8 percent when the taxes were harmonized. Indeed, supported by transition payments from the federal government totaling $961 million for the three provinces combined, the Atlantic Provinces hoped that the economic stimulus of the HST would yield enough economic growth to make up for the loss in revenue.
Another reason that the experiences of the Atlantic Provinces might deviate from those of Ontario and British Columbia is that the elimination of taxes on business inputs may have a greater effect on businesses costs, since the two provinces have a larger and more developed secondary and tertiary sectors. This has the potential of resulting in more than proportional reductions in costs.
Possibly in an acknowledgement that this ‘pass-through’ effect is not going to occur for all expenses that consumers must undertake, the governments of New Brunswick, Nova Scotia and Newfoundland and Labrador each have a credit, sometimes income tested, to assist with the cost of home heating. Not all industries are subject to the competitive pressures that will give rise to this much touted pass-through effect. Some economists have pointed out that a mixture of firms with market power and uninformed consumers can make it easy for businesses to increase markups when the taxes go down.
