Confusion reigns among many residents of British Columbia as they face an important and binding referendum on whether or not to keep the new Harmonized Sales Tax (HST). The mail-in referendum deadline has been set for a July 22nd deadline, although Elections BC is now warning that a postal strike could force a postponement of that date.
While some of the confusion extends to the meaning of a “Yes” or a “No” vote, it appears that the BC government’s efforts to mitigate the effects of the HST on poorer citizens have had an effect: a June 9 Angus Reid poll shows that the spread in voting intentions has narrowed considerably, with support for going back to the GST + PST system in a marked drop over the last year. The government has said that if the referendum decides to keep the HST, it will lower the rate by one percentage point in July of 2012, and another point in July 2014, a cut from 12 to 10 per cent.
The poll showed that 56 per cent of the 805-person sample would vote Yes in the referendum and 44 per cent would vote No. A year ago, four in five decided voters (82%) said they would vote to scrap the HST, while only 18% wanted to keep it. A Yes win in the referendum would abolish the HST and return the province to the GST + PST system, while a No would give the green light to keep the HST in place. The survey shows that 17 per cent of respondents—and 19 percent of those who say they will vote Yes—mistakenly believe that if the Yes side wins, the province will lower the HST to 10% by 2014. Christy Clark is also offering cash to families and low-income seniors: 560,000 families with children will receive $175 per child under the age of 18, while 200,000 single seniors and another 30,000 senior couples with low-to-modest incomes will get a maximum of $175 each.
If voters choose to abolish the tax, there would be at least three thorny issues to address. One is the amount that might have to be repaid to the federal government—as much as $1.6 billion in adjustment costs that BC has already received. Another is addressing the larger revenue gap the province would face. An independent panel appointed by the BC government to look into the HST estimated that it would bring in an extra $820-million a year in 2013-14 and $893-million in 2014-15 and that going back to the PST would cost the province $531-million in lost revenue in 2013-14 and $645-million the 2014-15. Finding a way to bridge the deficit could be equally unpopular. According to the panel’s calculations, the HST would also create nearly 25,000 jobs by 2020. Abolishing it would raise the third problem: changing back to the GST + PST system would be very costly for businesses that have changed over to the new system, as well as to the government’s tax administration machine.
It is unusual for the public to be asked to vote directly on a complex policy issue. It is therefore important to examine the facts carefully before making a decision.
The Effect of the HST
Critics charge that the tax costs consumers more overall, $521 a year per household. Proponents of the tax point out that under the old system, consumers paid hidden taxes embedded in every stage of production of goods and services, at great cost to businesses, and without accountability to the public.
The HST only taxes the final stage of production, where the product or service is sold to the end user, and it is a visible tax. This reduces the cost of production to businesses, which they say will allow them to lower prices and create more jobs. The HST applies to a broader base of products and services than the old system, such as new houses, but there are tax rebates for poorer households to cover this.
The BC government’s analysis shows that after the offsetting income tax reduction measures associated with the introduction of the HST, the poorest 20% of the population will be $193 BETTER off after implementation of the tax; the second-poorest 20% are pretty much even, and only the richer segments will be paying slightly more overall.
At the request of the Times Colonist, Statistics Canada analyzed 15 household types and 15 income classifications using its social policy simulation database and model. Statistics Canada determined what that sample spent on various items, its household income and characteristics, and then followed the rules of the income-tax system and applied all of the rebates, tax credits and rules surrounding the HST and GST to the sample to determine the impact of the tax.
The figures suggest the more money households bring in, the more they will pay. For example, a household with an annual income of $40,000 to $50,000 will pay $253 more because of the HST, while households in the $80,000 to $90,000 range will pay $1,128 more annually.
A study released by the Fraser Institute on June 21 2010 offered a VERY different picture. It calculated the average BC family will pay $249 more in sales tax in 2011 under the HST. At the same time, personal income tax reductions equate to a reduction of $205 for the average family. According to the Fraser Institute the total tax bill for the average British Columbian family will only increase by $44 under the HST.
Statistics Canada’s model incorporated a number of measures designed to offset the effects of the tax. Those include a B.C. HST credit of up to $230 annually to low-income households, an increase to the personal tax credit, a rebate for home energy and point-of-sale rebates for a number of other items.
New Announcements Call for Drastically Different Math
HOWEVER, since both studies predate the new measures the BC Government just announced, neither of them take into account the net cost to families and individuals after the HST has been reduced by 2% or after the new credits to children and seniors have been implemented. We now know that the average B.C. family will see an overall tax reduction of $120 a year when the HST rate reaches 10 per cent. When the newly announced transition cheques are taken into account, the average family is already better off when the HST reaches 11% than it was under the old system.
A majority of the British Columbians polled by Angus Reid agree with most economists and academics that consumption taxes are preferable to income taxes (58 per cent versus 42 per cent) and this holds even more true for those who voted for the Liberals in the last provincial election (66 per cent). However, a majority of NDP voters (56 per cent) would rather pay taxes on their income.
Angus Reid found that more than half of British Columbians think that small business owners (63 per cent) and economists and academics (61 per cent) are “very credible” or “moderately credible” on the HST. Two in five find the Premier and leader of the BC Liberals, Christy Clark credible, and 35 per cent feel that way about the NDP leader and Leader of the Opposition, Adrian Dix. Former Premier Bill Vander Zalm, who has been leading the fight against the HST, achieves a higher credibility ranking, at 47 per cent.
BC Liberal voters rate Premier Clark higher, 66 per cent, while NDP voters find Dix (65 per cent) and Vander Zalm (also 65 per cent) more credible on the HST.