Summary
The result of the referendum on the Harmonized Sales Tax (HST) was released today. British Columbia voters decided to extinguish the HST by an approximate ten point margin. 54.7 percent of voters who cast a ballot in the mail-in referendum voted “yes” to the question:
Are you in favour of extinguishing the HST (Harmonized Sales Tax) and reinstating the PST (Provincial Sales Tax) in conjunction with the GST (Goods and Services Tax)? Yes/No
The total number of ballots cast was 1,610,125. 881,198 voted “yes”, 728,927 voted “no”. The total number of ballots cast closely paralleled voter turnout in the last (2009) general election.
Former Socred premier Bill Vander Zalm found success in his anti-HST campaign.
The riding-by-riding breakdown indicated support for the tax in ridings such as the North Shore of Metro Vancouver and a number of historically safe BC Liberal seats. The North Shore, the West Side of Vancouver, Langley and the Fraser Valley largely voted to keep the HST, while East Vancouver, Burnaby, the Tri-cities, Richmond and most of Surrey voted to extinguish it. All NDP-held ridings and most “swing ridings” in BC voted against the tax. Many ridings with large ethnic populations voted against the tax.
Analysis
The HST vote represents one of the more significant exercises in direct democracy in Canadian history and one of the few times (if not only time) tax policy in Canada has been put to referendum. The failure of the government to win support for the tax, particularly in ridings held by the government, may give pause to BC Liberal considerations of calling an election, possibly as early as this fall.
The defeat of the HST complicates the government’s fiscal plan and progress towards a balanced budget in the near term. Transition funds will be paid back to the federal government and either spending cuts or new sources of revenue will need to be identified to offset an ongoing shortfall of an estimated $800 million per annum.
In addition to impact to the government’s fiscal position, the failure of the HST will likely affect the competitiveness of industries (natural resources, film, etc.) where input costs are a factor. Possibly anticipating today’s result, Ontario’s Finance Minister commented early today that removing the HST in BC would be to Ontario’s competitive advantage.
Pundits are pointing to the NDP as the political beneficiaries of today’s result. With a lengthy transition period to removal of the HST and obvious public enmity respecting how the government introduced and implemented the HST, it is uncertain how or whether the government may fully put the issue behind them. This will be particularly the case if removal of the HST is tied to spending restraint and program cuts in the months to come.
Transition Plans
Shortly following release of the results of the referendum, Finance Minister, Hon. Kevin Falcon, unveiled the government’s “Plan B” to deal with the fallout. In summary, the plan will:
* Reinstate the combined 12 percent PST and GST tax system in BC, which is expected to take a minimum of 18 months. During this period, the provincial portion of the HST will remain in place at 7 percent.
* Reinstate the PST with all permanent exemptions at 7 percent. The Province may also make some administrative improvements to streamline the PST.
* Repay $1.6 billion in federal transition money to the Government of Canada.
* Undertake public consultation to solicit views on the on-going fiscal implications of removing the tax (estimates are that removal of the tax represents an $800 million loss to the BC Treasury annually).
* Continue delivering the HST Credit to low-income British Columbian’s until the PST is reimplemented. The $75 PST low income credit will be reinstated at the time the HST is replaced.
An action plan has been established to ensure a transition to the PST. Key phases in the transition process include:
Federal Transitional Rules and Systems:
* The Province has begun work with the federal government to develop HST transition rules and to make necessary changes to systems and processes.
* The provincial government will begin discussions with the federal government about exiting the Comprehensive Integrated Tax Coordination Agreement (CITCA) including the return of the funding received for adopting the HST.
Provincial Legislation and Transitional Rules:
* The provincial government will develop legislation and regulations necessary to re-implement the PST and may make some administrative changes to streamline the PST.
* Provincial PST transition rules to mirror federal HST transition rules will be developed.
* The provincial government will develop other legislation and administrative programs necessary to support the full reimplementation of the PST (e.g. hotel room tax, etc).
Provincial Systems Development:
* The Province will develop and establish appropriate reporting, data gathering, billing, remittance/collection, audit, assessment and appeal processes, and supporting computer systems to administer the PST and other related taxes.
Provincial Administration:
* The Province will re-establish its capacity to administer the tax in the areas of registration and close of business, field and desk audit, appeals, rulings, provincial tax information phone lines, billings and remittances, collections and refunds. This will include staffing, facilities and equipment, and staff training to administer the PST and related taxes. This also includes developing appropriate administrative reporting forms and other information and communications material required to support the transition.
Provincial Business Registration and Outreach:
* The provincial government will register approximately 100,000 businesses as tax collectors before the PST is re-implemented and provide information and training on the tax application, collection, compliance and reporting rules related to the PST. By the time the PST is re-implemented, there will be an estimated 30,000 new businesses with no PST experience. These businesses will need to be registered and provided with detailed information and training to enable them to comply with the tax law.
Business Transition:
* Businesses will need to change their own electronic and manual systems and processes to assess, collect, report and remit the PST and other related taxes to the provincial government.
Other Stakeholders:
* The provincial government will consult with key stakeholders once provincial transition rules are completed. The Province relies on partner agencies to help ensure efficient tax collection, reporting and compliance. These agencies will need to make a number of systems and process changes, as well as receive information and training to help complete the PST transition.
Doug Foster, Director, Strategic Initiatives, Ministry of Finance, will lead the government’s transition process.
While every effort has been made to ensure the accuracy of the information included in this publication as of the date issued, events and government policies are subject to frequent change. Therefore, Fleishman-Hillard cannot assume any re-sponsibility for actions taken solely or principally on the basis on the information contained herein. For more information on how Fleishman-Hillard can assist your firm, please contact Katie Robb at Fleishman-Hillard, (604) 688-2505.
