days after Ispos-Reid
reported overwhelming public disgust with the HST, the
federal parliament passed enabling legislation for the tax.
Perhaps somewhat late to effectively protest, the B.C. restaurant
and foodservice industry chose the same day to launch its
against applying the tax to restaurant meals.
the BC Liberals shocked voters by announcing just two months
after the election the harmonized sales tax, they claimed
that it would be "revenue neutral". It took until
the September 2009 budget update to see what the BC Liberals
meant by revenue neutral.
By revenue neutral, the BC Liberals appear to mean that in
the first year government expects to receive so much money
from the HST that it can pay for $1.1 billion in HST rebates
(point of sale, municipalities and housing) and $600 million
in income tax changes and still come out with about the same
net revenue as it did with the PST.
response to a freedom of information request I was given a
telephone briefing in which I was told that estimates of benefits
by industry were derived from the Input-Output
tables published by Statistics Canada. Of course that
set off a search for the data and my discovery that anyone
can get the data used by BC's Ministry of Finance for a payment
to Statistics Canada of $165 plus GST. I paid and got the
2006 Input-Output table for BC which provides the distribution
of PST by industry and commodity. It is consistent with the
23rd news release which reported:
estimated the HST will remove over $2 billion in costs for
B.C. businesses. That includes an estimated $1.9 billion
of sales tax removed from business inputs, which enhances
competitiveness, increases investment and productivity and,
ultimately, increases prosperity. For example, some savings
would include about $880 million for the construction industry,
$140 million for manufacturing, $210 million for the transportation
industry, $140 million for the forestry sector, and $80
million for mining and oil and gas."
only major discrepancy between that news release and the Input-Output
table used to support it is in the benefit claimed for forestry.
According to the Statistics Canada data, PST paid by forestry
and logging as an input in 2006 was $36 million; forestry
might also mean saw mills and pulp and paper mills, but those
are part of manufacturing. Nevertheless, the bottom line is
the same. The total savings for all industries is $2 billion
because they will be able to claim input tax credits after
the HST is introduced.
of the most interesting observations from the Input-Output
data is that 41% of the approximately $2 billion in benefits
to industry are reaped by construction. In 2006, 40.0%
of construction was residential, 48.1% nonresidential and
11.7% repair. It is not obvious how or whether the benefits
of the HST tax credit for construction will flow to consumers,
but those who purchase construction after July 1, 2010 will
not only pay 7% on the inputs previously taxed by the PST
but also on other inputs, primarily labour, not previously
taxed. That is why home builders have set their hair on fire
in opposition to the HST even though construction is the major
beneficiary of HST input-tax credits.
Input-Output data also make it clear why the hospitality industry
is upset with the tax. The $10 billion industry paid $48 million
in PST in 2006 (less than one half of one percent of its revenue).
That means it gets very little by way of input-tax credits,
but its customers will pay 7% more on everything they buy
after July 1, 2010. That's not just on the occasional big
meal out; it's on working people's lunches, coffees and treats.
Estimates of price
elasticity for restaurant meals support the industry's
claim that they will lose 7% or more of their business as
a result of the HST.
if claims by supporters of the HST are true with respect to
price reductions from industries that benefit from input-credits,
a price reduction (before the 12% tax is applied) in the cost
of my neighbour doing a renovation isn't going to help me
pay the increased cost for my coffee and newspaper. The change
will make the underground economy in construction even more
attractive and expose those who use it to rip-offs and liability.
There are winners and losers with the proposed change from
the PST to the HST; those who lose vastly outnumber those
who win and the public opinion polls demonstrate that people
those who are interested in Input-Output tables, see the PowerPoint
presentation at https://ozone.scholarsportal.info/bitstream/1873/150/1/Input-Output.PPT.)