November 9, 2009

Countering Pro-HST Propaganda

The $1.9 billion per year tax shift from businesses that will follow the introduction of the harmonized sales tax (HST) hurts not only individuals and their families, but also school boards and municipalities. A November 8th NDP news release quotes the B.C. Association of School Business Officials (formerly the BC School District Secretary Treasurers' Association) as estimating that the HST could cost school districts $24 million a year; that's on top of the hit public sector employers will take from picking up the January 1st increase in MSP premiums.

The Campbell government's HST website has turned into a piece of political propaganda rather than a useful source of hard information on the new tax. In a "for the record" column, the question of the impact of the HST on municipalities is addressed by claiming:

"Local governments already pay PST on a number of goods. This new rebate will offset new HST costs by making up the difference between PST already paid and the incremental new costs of HST with a 75 per cent rebate of the provincial portion of the HST."

Just like you and me, local governments do not pay PST on most services, or on any of the goods currently exempted from the PST but taxed under the HST. The challenging question is how 25% of the HST municipalities will pay compares to 100% of the PST they pay. No doubt municipalities are doing their own calculations on that, but the answer from school districts is that they will be short by $24 million. Lucky property tax payers will get a double hit because, in addition to paying more through the HST, they will no doubt be asked to pay more to support municipalities and school boards to cover the additional costs they will get hit with as a result of the HST.

The truth regarding some of the claims and counter-claims about the impact of the HST could be determined if the government would share with British Columbians its estimate of the difference in the size of the tax base when it shifts from the PST to the HST. The tax base is the total value of all goods and services that are subject to the application of the PST or HST. It is easy to calculate the PST tax base by dividing government's PST revenue by the 7% tax rate. Several years from now we will finally have access to how much the HST raises in its first year, and then we can do the same calculation to see what adding services and currently exempted goods to the tax base did. In July 2011 public accounts should give information on the first 9 months of the HST, but government must already have some estimate of what that figure will be or else they couldn't claim that the tax will be "revenue neutral" to government. In response to a freedom of information request for their estimate of the size of the HST tax base, I was told that it would cost me $630.00 to search the records so as to provide an answer. Of course I'm not paying that fee because the answer tells me that finance officials must be making the information on the HST up as they go along, otherwise they would be able to simply pull the file that supports the claims that Finance Minister Hansen and Premier Campbell have been making.

It is not just the government's refusal to produce an estimate of the HST tax base that makes me question their credibility with respect to their claims about the HST. The July 23rd news release which announced the HST (just 2 months after the election) said that the tax is an essential step to encourage billions of dollars in new investment. There is one big problem with that claim. The Campbell government already eliminated the PST on "production machinery and equipment" in 2001. I submitted a freedom of information request asking how much tax revenue was foregone for each year since that exemption and for any documents that discuss estimates of changes in investment as a result of the exemption. On October 30th I received an answer saying: "Pleased be advised that the Ministry has no records responsive to your request. Budget 2001 estimated the cost of the exemption when first introduced but the cost has not been estimated since because it is not part of the Tax Expenditure Survey. The exemption was excluded from the Tax Expenditure survey because it focuses on major consumer tax expenditures rather than business tax expenditures. The estimated cost in 2001/02 (part year) was $107 million and for 2002/03 it was $160 million." It appears that the claim the HST will stimulate billions in investment is based on little more than ideology and blind faith.

On two other freedom of information requests regarding the HST I've been told that since "a large volume of records" needs to be searched there will be an extension of the time limit for responding to my request. Like the request for the size of the HST tax base, both requests were specific; you'd think a Ministry of Finance official could simply pull the file that supported their published claims. One of the outstanding requests, for which a response is now due November 27th, is for any documents that mention how the estimated $880 million in savings for the construction industry as a result of the implementation of the HST was determined. The infamous July 23rd news release indicated that of the $1.9 billion that would be shifted from businesses to BC families, the construction industry would save $880 million. The problem with that claim is that it is inconsistent with the information available from Revenue Canada on the GST. For the fiscal year 2003-2004 (the most recent published data), the distribution of input tax credits claimed by major industry groups shows that of $130 billion in total credits, four industries that make up construction ("building, developing and general contracting", "industrial and heavy construction", "trade contracting" and "service industries incidental to construction") together claimed only $7 billion in credits; that's 5.4% compared to the Campbell government's claim that the BC construction industry will get 46% of the benefits from introducing the HST. Did someone in the Ministry of Finance misplace a decimal point? Perhaps that is why they have so many documents to search that they couldn't answer my freedom of information request in a timely manner.

I also have a freedom of information request in, now due for response on November 30th, for any documents that indicate the assumptions and calculations used to generate slide 23 in the 2009 budget update documents. That's the slide where the government made the preposterous claim that: "A family of four with $60,000 income, which does not have a child in kindergarten, would see a total annual cost increase of $206 as a result of the HST …" Dividing the $1.9 billion that will be shifted from businesses by BC's population of 4.5 million gives a cost per person of $422 or $1,689 for a family of four. Instead of quickly pulling out the working papers that back up their slide presentation, the Ministry of Finance said they needed more time to respond to the request because of the number of records to be searched. Maybe they should look under fantasy or wishful thinking because they will never find documents that support their claim - another reason why the Campbell government destroyed its credibility with the HST.