Update as of Dec 2, 2009: My mea culpa appears to have been premature. Table 3 (p. 85) in the September budget documents provided an estimate of expected HST revenue of $6.5 billion.

August 7, 2009

Mea Culpa on HST Revenue Estimate

There is a strong possibility that my estimate is wrong that the HST will raise $6.5 billion for the BC government. What is wrong with the argument is not obvious, but three alternative methods of estimating the likely HST revenue for BC yield different and roughly consistent results. Apart from being bad for my ego in having originally estimated incorrectly, the lower estimates are also bad because, apart from the one time transition grant of $1.6 billion from the federal government, BC might not have sufficient revenues to adequately compensate consumers and businesses who suffer from the $1.9 billion tax shift (that's the savings government estimates for industry).

Consider three estimates of HST revenue. First, Public Accounts for Canada, for the fiscal year ending March 31, 2008, show GST revenue of $29.9 billion. As a back-of-the envelope estimate, take 13% of that to represent BC and multiply by 1.4 to represent the ratio of 7% to 5%. That gives an estimate for BC's HST revenue of $5.44 billion. Second, using 2002 data, the CD Howe study cited on the Ministry of Finance's HST webpage estimated HST revenue of $4.092 billion, an increase of $224 million relative to their 2002 PST figure. Third, it is possible to do a rough estimate by looking at the per capita HST revenue in Nova Scotia and New Brunswick, multiplying by BC's population and by 0.875 (the ration of their 8% to BC's 7% tax). Using their 2008 fiscal year results, that gives an estimate for BC HST revenue of $4.4 billion using NS and $4.3 using NB. If those estimates were close to the mark, BC would have a significant revenue shortfall relative to the $5 billion the PST currently brings in. None of these methods produce results anywhere close to my previous estimate of $6.5 billion in HST revenue for BC.

It would be fascinating to see what the Ministry of Finance did to estimate HST revenue prior to entering into the Memorandum of Understanding. British Columbians need to worry about government revenues since they fund health, education and other important services, but they also need to worry about their own household finances. Long before we see the results which show which HST estimate is correct for the provincial treasury (probably not until the Public Accounts come out in July 2011), BC families can look at every receipt they receive and notice whether it has just the 5% GST or also the 7% PST. Those with just the 5% GST will show a 12% HST starting July 1, 2010. A $1.9 billion tax shift from industry to BC families will mean $1,700 in higher taxes for a family of four.

Price system ideologues argue that the market will solve the problem and compensate consumers with lower prices, but they also acknowledge that the primary beneficiaries of the change from a sales tax to a value added tax are capital intensive industries. Lowering costs for the forest and mining industries might help to create jobs, presuming prices for their products eventually recover, but British Columbians don't directly purchase products from export industries. It is good to make them more competitive but that won't lower the cost of a restaurant meal or a haircut.

August 5, 2009

HST Tax Grab is $1.5 Billion

After allowing for $1.9 billion in savings for some businesses (mostly capital intensive industry), Gordon Campbell's new HST will bring in $1.5 billion more per year than the current provincial sales tax (PST). Unlike the one-time federal bribe of $1.6 billion for "transition assistance", the additional $1.5 billion goes on forever, above and beyond the $5 billion currently collected through the PST, and the combined $6.5 billion grows as the economy grows. Those windfalls fully account for input tax credits and major rebates, including point of sale, rebates to public sector bodies and housing.

While the Ministry of Finance didn't answer my question regarding the size of the increased HST tax base, it provided an even more useful figure when it suggested the HST base net of credits and rebates would have been $93 billion in 2007. Dividing that useful figure by 7% gives the estimate of the tax take from the HST.

In the absence of any new relief for consumers, the corporate tax shift of $1.9 billion plus the $1.5 billion increase in tax means consumers will get hit with $3.4 billion per year in new tax starting July 1, 2010. That works out to a tax hike of over $800 per person, from infants to seniors.

If the Campbell government keeps the tax shift revenue neutral from the government's point of view, it can disgorge $1.5 billion in any form it chooses, e.g. low income tax credits and cheques for every family, like your $100 carbon tax cheque. Even if the government gives back revenues in excess of $5 billion, the old PST take, consumers will still suffer from the $1.9 billion corporate tax shift, which works out to over $450 per person.

Most families of four cannot afford to get hit with between $1,900 and $3,300 in new taxes without cutting spending somewhere. That cannot be good for families or the businesses that rely on their spending.