Reluctantly, I’ll be voting against the HST this June. It’s a difficult decision (and indeed some associated with my organization have landed on the other side of this question).
I come to my position reluctantly because: a) I do not relish joining anti-tax campaigns (they tap into a current in political culture that ill serves us in the long term); and b) I accept the arguments that a value-added sales tax such as the HST is more economically efficient than the old PST.
That said, the economic benefits of the HST have been grossly overstated by its proponents. Many of the businesses that will most benefit from the HST (particularly in the resource sector) are much more sensitive to demand-side considerations (namely the global market for their products) than to supply-side considerations (such as taxes) when making their investment decisions.
These caveats notwithstanding, there are core design flaws in the HST that mean the tax as currently structured is simply unfair and exacerbates trends that have undermined the overall progressivity of B.C.’s tax system for the past decade.
Those trends are two-fold:
- a shift in government revenue from corporations to households; and
- at the household level, a shift from progressive income taxes to regressive consumption taxes, such that upper-income households have seen a much larger drop in their taxes.
From the time the HST was introduced, Canadian Centre for Policy Alternatives (CCPA) economists have provided nuanced analysis highlighting key flaws, but showing how these can be fixed. Their recommendations, however, have thus far been ignored. The government has stubbornly refused to fix what is broken. And in the absence of a willingness to redress these defects, I am resigned to voting against the tax.
When comparing the overall corporate tax regime in B.C. to other jurisdictions, there is simply no compelling case that the corporate sector in B.C. was in need of a massive tax reduction (the HST system, by providing rebates for taxes paid on inputs, bestows upon businesses a tax cut of somewhere between $730 million and $2 billion). As it is, corporate tax rates have been dropping for years, and global accounting firm KMPG consistently finds B.C. to be one of the least expensive places in which to do business in the industrialized world. I’m sure many businesses appreciated the tax cut, but there is no evidence they needed it.
At the household level, British Columbian consumers will be paying more (about $1.3 billion more, according to the recent report of the government-appointed HST panel). Fundamentally, the HST and its low-income credit, as currently structured, fail the equity test. The credit largely off-sets the higher HST costs for the poorest British Columbians, but its early and quick phase-out means that many modest and middle income households will be facing higher costs.
It is possible, however, to envision a reformed HST regime that I would be happy to support; changes that would see B.C. realize the economic and efficiency benefits of the HST, while adequately addressing and offsetting the equity impacts of this shift from the PST to the HST.
The HST credit should be restructured along the lines of the Canada Child Tax Benefit or Old Age Security, such that the phase-out is much more gradual. This more generous credit could be paid for by an increase in the general corporate income tax rate (equivalent to what the corporate sector is saving due to the HST). Such an approach would not affect most of the smaller service-sector businesses that have been harmed by the HST (as they are subject to the much lower small-business corporate income tax rate).
Ultimately, it is unfortunate that we will be voting on a terribly narrow referendum question that will produce no particularly positive outcome either way.
As a province, we would be much better served by a fair tax commission in which we put the entire B.C. tax and royalty regime on the table. British Columbians deserve a chance to thoughtfully deliberate on all the options and to determine together how we want to raise the revenue we need to meet our social, environmental and economic goals.
Seth Klein is the B.C. Director of the Canadian Centre for Policy Alternatives