September 2, 2009

HST Take

A slide show, available on the government's post-election budget update website, makes the assertion that a family of four with a $60,000 income would pay only $278 more as a result of the implementation of the HST. No wonder the Campbell government has little or no credibility!

Slide 23 indicates that the family currently pays $983 in "direct" PST, i.e. the sales tax they can see on receipts for everything they purchase over a year. It also claims that with the HST they will pay only $1,261. A note on the side says that the tax calculation does not reflect any cost savings to consumers as a result of businesses no longer paying the PST, but the government has reported that businesses will save $1.9 billion per year. Dividing that by 4.4 million British Columbians gives an average tax shift from business to families of $428 per person, or $1,712 for a family of four. That's just the increase on top of the $983 that family already pays in PST, so the HST total should be around $2,695. Why does the government claim the HST tax increase for that family is only $278, when simple arithmetic indicates the increase is more than six times greater?

Keep in mind that the HST will apply to almost everything that currently attracts only a 5% GST; home heating fuels and children's clothing are amongst the exceptions. Some "goods" that currently are exempted will be taxed, for example restaurant meals and coffee at outlets like Starbucks or Tim Hortons, and services ranging from hair cuts to funerals. The government likes to cite a 2007 study by Michael Smart, published by the C.D. Howe Institute, to support its claims that businesses will pass tax savings on to consumers (even though the study's findings on that point were statistically insignificant). Smart's study used Statistics Canada's input-output tables. He included a table showing that switching to the HST would increase the tax on consumers by 85%, and that 44% of that increase would come from taxing services which were not previously taxed. Using Smart's table (p. 6, Table 1), the family of four would see their sales tax increase from $983 with the PST to 1.85 times that, $1,819. That's less than the calculation of $2,695 given above, but it is still an increase three times greater than what the government claims will hit that family.

I have submitted a freedom of information request asking for documents which show what assumptions were made and what calculations were done to produce the government's claim that switching from the PST to the HST will increase what the $60,000 family of four pays by only $278. It could be that the family will be able to total its receipts and report the increase before the government responds with its calculation, but just in case the calculation isn't a cabinet secret, it is worth asking for it.