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May 12, 2011

HST and Jobs

Finance Minister Kevin Falcon announced the government will spend no more than $5 million of your tax dollars to educate you about the HST; that means he'll be spending your money to get you to vote for the tax. The $5 million is in addition to undisclosed amounts for telephone town hall vote identification efforts, the HST “information” office and what the pro-tax business community will spend on its ad blitz that is about to start. Unlike general elections where there is a advertising blackout on election day, the government ads will continue to run through at least half of the 5 or 6 week postal-ballot period.

The last time the nation's establishment launched a massive campaign against voters was during the referendum on the Charlottetown Accord. Like that ill fated effort to amend the constitution, the government may discover its propaganda is counter-productive.

The pro-HST campaign focuses on understating the HST's cost to families, overstating expected long term economic benefits and maximizing uncertainty and anxiety on what is involved in unwinding the tax. The anti-HST campaign is based on asking people to trust their own judgment. Most families know that the tax is costing them more money, how much depends on the circumstances of each family. No one knows what to believe about future benefits or the cost of going back, but government, particularly the current government, lacks trust and credibility on any story it tells.

The HST panel chaired by former Alberta treasurer Jim Dinning was supposed to provide a neutral assessment of the tax, but contradictions between it and what earlier proponents of the HST claimed have only added confusion. Is the HST a tax grab or does the government raise the same amount with it as it would have with the PST? The government said the tax was neutral but the Dinning report claims it would raise over $800 million per year more than the government reported. If that is true, it amounts to a substantial tax hike!

Last year the government paid economist Jack Mintz to produce a report on the HST in which he claimed that the combined effects of federal and provincial corporate tax cuts and sales tax harmonization would create 141,000 new jobs by 2020. The Dinning panel reported that the HST would create an additional 24,400 jobs by 2020. How is an ordinary voter to know the truth? No one can predict the future. A lot of things will change by 2020 and then economists will argue over what caused what. We can look to the past and see what happened with respect to job growth when Nova Scotia, New Brunswick and Newfoundland and Labrador switched to the HST in 1997.

The graph shown here is based on total employment in the three Atlantic provinces that implemented the HST Employment Growth Ratecompared to total employment in Manitoba, Saskatchewan and British Columbia, three western provinces with the PST. Using annual employment data from Statistics Canada's labour force survey, the graph shows the difference between annual job growth in the HST and PST provinces. The vertical line marks 1997 when the HST was implemented in the Atlantic provinces. From 1989 through 1997 the three Atlantic provinces had lower job growth than the three western provinces. The HST provinces showed good growth in 1998, but then followed a downward trend relative to the PST provinces through 2006. It is important to note that the good year in 1998 followed the implementation of the HST in 1997 but it was part of a trend that started in 1992. It is hard to build a case that the HST stimulated job growth or that the PST provinces performed worse than the HST provinces. In the period after 1997, there were 6 years when the HST had higher job growth than the PST provinces and 7 years when the growth was worse; sadly for the HST provinces the trend in the differences is clear from the graph.

Some economists argue that labour force participation rates are a better indicator than employment growth rates. Employment Participation Rate The second graph compares total employment in the HST provinces divided by the population between ages 15 and 64 with the same ratio for the PST provinces. As was the case with employment growth, the improvement in the Atlantic provinces began in 1992, five years prior to the implementation of the HST.

Perhaps it is the experience of the Atlantic provinces that led the Dining panel to produce a far lower estimate of job growth than did the report commissioned earlier by the government. Job growth in British Columbia is normally almost two per cent a year, that's over 30,000 jobs a year, between 300,000 and 500,000 jobs over ten years. The job growth claimed for the HST by 2020 couldn't be measured against normal growth and fluctuations. It certainly isn't sufficient to justify families bearing the cost for the $2 billion per year tax relief for business.