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June 18, 2010

How to Make Up for the HST Bribe

Where would the money come from if there were no HST, seemed to be a popular question on talk shows as the week ended. It almost looks like the government's propaganda shop has been lobbying talk show producers and columnists.

On CKNW's popular Friday morning show with Vaughn Palmer and Keith Baldrey, Palmer told the audience he was doing the math for an article that would show the PST would have to be increased a point for two years in order to make up for the $1.6 billion that would be lost if BC cancelled the hated sales tax; the $1.6 billion is the amount the federal government paid the province as a one-time adjustment payment. Of course, no one has seriously proposed that straw man. In Ontario, the HST adjustment payment was used to finance payments to families so as to ease the shock they will face as taxes are shifted to them from businesses; in BC the federal bribe money went into general revenue to pay down the deficit which was understated during the last election.

If the HST were cancelled and Ontario lost the federal bribe money, families wouldn't need it. In BC, if the HST were cancelled, families wouldn't get hit with a shift of $2 billion per year in taxes currently paid by businesses, but the government would lose the $1.6 billion bribe, so the deficit would have to be honestly re-stated. That deficit would be paid off, as it otherwise would have been paid, through economic growth, not by adding one point to the PST for two years or by increasing any other tax.

Where will the money come from to pay for health, education and social services seems to be one of the questions pushed by HST defenders in recent days. Apparently they have not read Table 1.8 on page 18 of the September budget documents. That table shows that after paying rebates on things like gasoline, the net revenue to the province in the first full year of the HST is estimated to be $5.4 billion - no change from the PST. The HST is about a tax shift of $2 billion a year from businesses to families, not about a new way to finance government spending.

The question remains how any government with any tax system will finance services. BC, like other provinces, fell into deficit as a result of the worldwide recession. Like other jurisdictions, BC will come out of deficit as economy recovery takes hold. Unlike some places, British Columbians will have a more difficult time recovering because consumers will bear $2 billion a year in additional taxes shifted from businesses as a result of the HST. That will result in a drop in consumer spending and a loss of jobs in much of the service sector, particularly in restaurants. In the absence of the negative effects of the HST, the BC economy would recover more quickly, allowing government to eliminate the deficit sooner, including a deficit honestly stated without the $1.6 billion federal HST bribe. Arguments that economic growth is not sufficient to pull BC out of deficit amount to saying that the Campbell government, through various tax changes, has put BC into a structural deficit. If that is their justification for the HST, they should admit it.

HST proponents argue that the economy will grow faster because of the HST, but they resort to using 10 year time spans for their estimates. In 2020, if the HST is still in effect, it will be impossible for any econometrician to isolate the marginal effects of the HST from everything else that will have changed, from commodity prices determined on world markets to changing demographics. Even in those longer time spans, some HST proponents acknowledge that the tax encourages substitution of capital for labour and hence has some elements of depressing long run employment growth. The only thing economists can say for sure is that in the long run we are all dead and that starting July 1st the HST will cost you more almost everywhere you shop.