A B.C. Fairytale: How the HST will save you money

On July 1st – Canada Day – the much maligned HST came into effect in British Columbia. This is, of course, the combining of our two taxes, the (federal) GST and the (provincial) PST into one super tax, the HST.

For many things that you buy the new tax has no effect; it just adds the existing 5% GST and 7% PST into the new 12% HST. As well, the government says that any items that were GST exempt previously – groceries for example – will be HST exempt as well.

But the other side of the coin is that there were many items that consumers only paid GST on and PST did not apply. That is no more. As of July 1st, any financial transaction that was charged only GST is now charged at HST rates. Thus the cost to consumers on many items has jumped 7%.

The provincial government has tried to make the case that prices charged to consumers will actually drop with the implementation of the HST. They then turned around and proved the lie by increasing liquor prices in their government stores by the 3% that the HST would have cut their costs.

British Columbians won’t be getting a price break on their favourite libations this summer, even though the harmonized sales tax lowers the provincial sales tax on booze.

The provincial Liquor Distribution Branch is ensuring its revenues won’t decline by increasing its markup on wines and spirits to offset a three-percent reduction in the sales tax, said Gord Hall, the LDB’s corporate policy director. In other words, prices of wine, beer and spirits at provincial liquor stores will remain the same.

“On July 1, British Columbians will see virtually no changes in price when they purchase liquor at a B.C. government liquor store,” Hall said in an e-mail.

“Markups are being adjusted to avoid price increases and we expect consumers will only see a difference of plus or minus a few pennies, depending on the product.”

Critics say the coming liquor markup undermines the provincial government’s argument that the HST will lower retail prices by reducing the tax burden on business.

I saw the effect in a minor way this morning out at a local driving range.

A medium sized bucket of balls was charged out at $6.50, pre-HST. This morning the same size bucket was $7.00. The 7% addition on the tax should have raised the cost to $6.93, but of course they rounded the amount up to the nearest dollar, which meant that the price increase was 8% and not the 7% imposed by the additional tax. They didn’t increase the number of balls in the bucket either, as in the interest of fair reporting, I counted them.

The HST will also mean an increase of $100 on my yearly golf course fees as well, along with increases in many other things such as BCAA memberships etc.

Now in all fairness, the provincial government has made some concessions in order to soften the effect on taxpayers by increasing the personal yearly tax credit to $11,000 from $9,373, which will possibly cut my personal income taxes by $100, provided something else isn’t slipped in there to offset that saving. (Cynicism showing).

There also seems to be some disagreement amongst the experts as to whether there will be a real saving to consumers as promised.

The policy strength is that it exempts all business inputs — raw materials, supplies and equipment — that companies need to do what they do. This, HST supporters correctly argue, will encourage investment and make B.C. more competitive.

The political weakness, as the tax’s many critics never tire of pointing out, is that this advantage comes only at the cost of shifting a significant tax burden onto consumers.

Just how much will be shifted is a matter for debate — given an income-tax break, the likelihood of increased economic activity (which will offset some of the cost) and some likely price reductions. These issues are at the centre of the spat over the very different predictions in two recent studies: one done by StatsCan for the Victoria Times Colonist, and another released the same day by the Fraser Institute.

The Fraser study predicted almost all income groups, except the well-to-do, would do better under the tax. StatsCan’s foresaw fairly heavy costs for almost every income group, with an average hit of $580 a year.

Based on past experience with government and taxes, I would lean heavily toward the StatsCan prediction.

There is one other aspect of the HST that really annoys me and that is the effect it will have on charitable organizations. I am involved with a couple of conservation organizations where under the ‘old’ system (prior to July 1st) contractors working on conservation projects only charged GST on their services, of which the charitable organizations got back a 50% rebate.

Under the new regime, the contractors will now have to charge HST at 12%, of which there is still a 50% rebate for the 5% federal portion and a 57% rebate on the 7% provincial portion, which will add just under 3% to the cost of doing conservation projects in the province. Maybe not a huge percentage increase, but with funding hard to come by in the first place it is just more money that will be siphoned off charitable work and fed back into government coffers.

On the ‘further complaints’ side, the Ontario government rebates 82% of the provincial share back to the charities. Then again, on the ‘it could have been worse’ side, the other provinces charging HST only rebate 50% of the provincial share.

The business community in BC is supportive of the HST tax and it is definitely an advantage from their point of view, if for nothing else but having the ability to deal with one agency for your tax filings.

Of course in B.C. we also have the HST Initiative in process to end the HST, which has obtained the necessary number of signatures in order to present the government with a fait accompli. What the government will choose to do with it from this point is moot.

Whatever they choose to do, the surprising success of the Anti-HST initiative (six previous initiatives failed) is going to make things very difficult for the government and if the public anger has legs may damage many of the seated Liberal politicians’ chances for re-election.

Tags: BC applies HST July 1st, BC HST, GST PST and now HST, HST Recall Initiative