January, 2010 - Bill Bennett’s MLA Column

HST Best Thing Since Powder Sking January 18, 2010

Good public policy often does not make for good politics. Such is the case with the forthcoming introduction of the new harmonized sales tax. Since the joint federal-provincial announcement last summer, much of the debate has focused on “political hay”, rather than on the “public policy” merits of the measure.
The HST is the best public policy initiative that the federal and provincial governments can take to improve the position of Northern British Columbia’s resource-based export industries. Here’s why.
By removing the PST now paid on business inputs, most sectors of the economy will become more competitive. Approximately 40 per cent of the PST is paid by businesses on goods and services which they purchase to run their operations – machinery, equipment, office supplies, furniture, energy, legal services, among many others. With the removal of the PST, businesses will be able to invest, grow, and create well-paid family-supporting jobs.
The paperwork burden associated with the administration of the two tax regimes (PST and GST) will decline. Currently, there are duplicate sets of tax rules, administrative authorities, and compliance requirements. Estimates place these savings at $150 million per year.
Many products will decline in price once the HST is fully implemented. Most businesses will receive a 12 per cent credit on the HST they pay. In a competitive market, these savings will flow to consumers as price reductions.
On a sector basis, the B.C. Ministry of Finance estimates $880 million in savings for construction, $210 million for transportation, $140 million for manufacturing, $140 million for forestry, and $80 million for mining and oil and gas per year. These industries form the backbone of the northern resource-based economy.
There is a lengthy list of exemptions from the HST including medical and dental services; child care services; long-term residential care; residential rent; legal aid services; most educational services; groceries; prescription drugs; medical and assistive devices; agricultural and fishing products; and, most financial services. Rebates will apply to municipalities, charities and non-profits, and new housing (new houses will be HST exempt up to $400,000 while homes over $400,000 will be eligible for a $20,000 HST rebate).
B.C. joins other provinces – except Saskatchewan, Manitoba, and Prince Edward Island – who have an HST. On policy alignment grounds alone, B.C. has little choice but to follow suit, especially with Ontario’s adoption of the HST.
The provincial government will benefit from a $1.6 billion one-time payment which can be used to trim the provincial deficit and maintain hard-won gains in the province’s overall personal and business tax competitiveness and fiscal position.
While the TD Bank published a study in September suggesting prices will increase by 0.7 per cent across the board, another study on the experience in Atlantic Canada suggests that consumer prices, with few exceptions, fell by 0.8 – 0.9 per cent following the HST. At the same time, with the HST in place, annual investment in machinery and equipment rose 12.2 per cent above trend levels in Atlantic Canada.
It is not a stretch to say that the new HST is a “game changer” for British Columbia’s productivity and competitiveness.
Moving to an HST will reduce B.C.’s marginal effective tax rates on new business investment from 26.4 per cent to 15.7 per cent or a reduction of nearly 41 per cent.
British Columbia at 15.7 per cent will be more competitive than Alberta (16.6 per cent), the Canadian average (16.1per cent), United States average (34.4 per cent) and the average of the Organization of Economic Cooperation and Development (21.9 per cent).
It is important to acknowledge that some service sectors – notably tourism and restaurants – may experience transitional challenges as the HST is implemented. There is a legitimate concern over “sticker shock” with the HST’s introduction, and the federal and provincial governments should find ways to ameliorate short-term impacts.
B.C. has emerged this decade as a highly tax competitive jurisdiction.
Improvements to the corporate income tax rate, the scheduled elimination of the small business income tax rate by 2012, the elimination of the capital tax, and significant reductions in personal income tax rates are making B.C. a more attractive place to invest, work, and live.
The move to an HST continues B.C.’s march from laggard to leader in tax competitiveness which will shore up the long-term prospects of our resource-based export industries.
More investment, more jobs, and a better standard of living for Northern British Columbians! Isn’t that something we can all get behind?
By Tim McEwan , Prince George Citizen