The restaurant industry was among the victors in the battle against the harmonized sales tax (HST). But the war for consumer dollars is far from over for the industry in B.C.
Restaurateur fears were rampant five years ago that the 12% HST would devastate an already challenged industry. Concerns were raised that patrons would spend less by either picking cheaper menu items or going out less often.
Statistics Canada data appears to suggest that was the case for a period of time. For roughly six months after the HST came into effect July 1, 2010, total food service receipts in B.C. trended lower, falling 2.8% to $624.4 million in February 2011 from $642.2 million in July 2010.
But Ken Peacock, chief economist at the Business Council of BC, noted in a recent analysis that sales had been dropping for months prior to the HST’s arrival. Some of that was to be expected, as the spike in sales in February 2010 was the result of the world coming to B.C. for the 2010 Winter Olympic and Paralympic Games. But the general downward trend in sales effectively began in March, five months prior to the HST’s implementation.
Peacock suggested a combination of circumstances likely contributed to the decline in restaurant sales at the time, including fears over job security, low wage growth and overall concerns about the direction of the economy given the onset of the Eurozone sovereign debt crisis.
But he suggests the HST wasn’t likely a major factor.
That’s because since February 2011, six months after the HST came into effect, restaurant sales in B.C. have started to recover and have continued to increase especially since July 2012, a year after the HST referendum, but a year before the actual return to the PST-GST system that led to a 5% drop in sales taxes on restaurant food.
“Over time, people adjusted to the additional tax on restaurants, so over time, you saw consumer spending in restaurants come back,” said Peacock.
The positive trend has continued for the industry in the new PST era, but the industry’s rate of sales growth has remained among the worst in Canada.
More on this next week. •
