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June 21, 2010

Fraser Institute Study Short Millions of People

In an 11 page "study" the Fraser Institute claimed that the total tax bill of the average BC family will increase by only $44 under the HST, consisting of the difference between an average increase of $249 for the HST and an average income tax reduction of $205. Everyone agrees that the HST will shift $1.9 billion in taxes from businesses to families, so dividing $1.9 billion by $249 means that BC would have to have 7.63 million families. The population of BC is only 4.5 million so something doesn't balance in the Fraser Institute's study.

The study is little more than a repetition of figures from the Ministry of Finance, which also claimed that the impact of the HST on a typical family is less than $300 per year. Those figures are based on using data from Statistics Canada on household spending and calculating what the total would be from charging 7% more on items not taxed by the PST but taxed by the HST. The problem for the Ministry of Finance, and the Fraser Institute, is that those calculations are inconsistent with the straightforward calculation that the HST will shift $1.9 billion from businesses to consumers and the calculation of how much the HST will raise for government. The federal government already knows how much GST is paid by British Columbians, so calculating the HST revenue is a simple matter of multiplying by the ratio of the HST to the GST and adjusting for the rebates. You can take that calculation to the bank, but you would be foolish to bet a dime on claims that the impact of the HST on families will be relatively modest.

Apart from the inconsistently between what the government and its supporters claim about the impact of the tax and what they say about the tax shift from businesses, anyone can look at their own spending and identify hundreds of dollars of increased costs that will flow from the HST.

A useful lesson when doing calculations is to do a rough estimate first, so as to be able to compare it to the results of any final calculations; if there are big differences look for the errors. In the case of the Fraser Institute, and the Ministry of Finance, their calculations suggest that it would take two or three times the current BC population in order to raise enough money for the government to raise the same from the HST as it does from the PST. Something doesn't balance, and the error appears to be in understating the impact of the HST on BC families, not overestimating the size of BC's population.