July 24, 2009

Harmonization Doesn't Mean Harmony

Thanks to Premier Campbell next year you'll be paying 7% more for a meal out, a haircut and hundreds of other things. "Wow, that was not anticipated," wrote the president of the British Columbia Restaurant and Foodservices Association, a solid supporter of the Campbell government. He received assurances from the Minister of Small Business just last week that an announcement on harmonization would require consideration of all impacts before it could be contemplated.

Harmonization of BC's sales tax (PST) with the federal goods and services tax (GST) was not mentioned in February's budget and not one word about it escaped the lips of Premier Campbell during the recent election, yet only two months later, before the August 25th sitting of the legislature, the tax change was announced with an effective date of July 1, 2010.

On March 26, Ontario announced that it would merge its sales tax with the GST; also effective on July 1, 2010, the announcement was part of a provincial budget tabled in the legislature where such announcements should be made. Since Ontario's announcement was made four months ago, British Columbians have the advantage of being able to read what Ontarians have said about the tax shift. According to a CBC frequently asked questions column, "many items that used to be exempt from sales tax will no longer be so." It quotes the Ontario Real Estate Association as saying that merging the taxes will add more than $2,000 to the cost of a real estate transaction. That's just the tax on the agent's fee; it doesn't cover what the tax does to increase home prices, estimated to be as much as $33,000 in the Toronto area. Even with the $20,000 rebate promised by Campbell for purchasers of homes priced over $400,000, the government will be pocketing much more from new home buyers with its harmonized tax.

Merging or "harmonizing" the PST with the GST means applying the provincial tax to a broader tax base. PST does not apply to most services, the exceptions being legal services and repair services (fixing something that was originally taxed). It also doesn't apply to a long list of goods. By contrast, the GST applies to almost everything; its exemptions are basic groceries, many medical items and health services, used residential housing and a few other things.

BC raised $5.072 billion with its 7% sales tax in 2008, and $4.958 billion last year. It will be awhile before we learn how much the Campbell government expects to raise as its share of a 12% HST. It may be "revenue neutral" for the government, but that doesn't mean it will be neutral for consumers, especially for new home buyers.