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June 6, 2011

GST/PST Balances Budget Two Years Earlier

If the government’s pro-HST website were fair, it would show that a return to the PST/GST would balance the budget two years earlier than keeping the HST. In addition to producing better results for the government’s bottom line, extinguishing the HST and reinstating the GST/PST would save BC families $2 billion a year that the HST shifts from businesses to them.

The government’s HST website provides a side-by-side comparison of what happens if people vote to extinguish the HST and what happens if is kept with Premier Clark’s promises being honoured for 2014. The comparisons are not neutral as important details are added or subtracted from the GST/PST alternative so as to make it look less attractive than it is.

Finance Minister Kevin Falcon had the opportunity to table revised budget documents in the legislature that could have projected to 2013-2014 what the government believed might happen under its proposed “fix” to the HST. Doing that would have required that it meet the standards of the Budget Transparency and Accountability Act, laying out assumptions and including a statement from the Deputy Minister and Secretary to the Treasury Board. Instead the government provided figures in a news release lockup for reporters and then added some numbers to its HST website with none of the detail required by the Act. That is important because the fiscal forecasts for the two options appear to be made under different assumptions. In particular, the pro-HST option includes additional revenue from returning to the 2008 corporate tax levels and postponing the cancellation of the small business tax, previously scheduled for 2012. That additional revenue is: 2012/13: $638 million; fiscal 2013/14: $653 million; fiscal 2014/15: $652 million.

If the figures in the GST/PST column on the government’s website are revised to include the same additional business tax revenue that is used in the pro-HST column, it dramatically changes the balance in favour of extinguishing the HST, turning a substantial deficit projected for 2012-2013 into a surplus of $95 million! Making equal assumptions for both columns seems fair.

The government’s website also cheats on the employment numbers claimed for the HST. The Dinning report estimated that the tax change would produce 24,400 more jobs by 2020. It admitted that estimating that far out is imprecise, yet it provided an estimate to the last 400 jobs on an employment base of 2.3 million. The government website inflates the employment estimate, claiming that without the HST the province would lose out on an extra 24,000 to 100,000 jobs. The larger figure comes from a report the government commissioned from Jack Mintz that was rejected by the independent panel. If the government’s website were neutral, it would say that relative to normal employment growth, no one would be able to say whether the small benefits claimed for the HST materialized or not ten years from now.

As an economist I probably get more excited than most over the misleading numbers thrown around by the Clark government in its attempt to sell the HST. I suspect that most voters pay little attention to the promises and claims, instead focusing on what the HST does to their family budget. There is a reason the government provided credits to families with very low incomes. It wasn’t to deal with poverty; it was to offset some of the negative impact of the tax. Middle income families feel the full impact of the HST.