British Columbians will be much better off under the new HST

 With the rhetoric coming from the anti-HST camp, you would think an economic apocalypse was just around the corner. British Columbians, however, should not to be misled by the misinformation surrounding the HST. Replacing the PST with a harmonized sales tax (HST) will greatly benefit all British Columbians. It will make BC more competitive, increase business investment, enhance job opportunities and provide long lasting economic benefits.

To understand why the move to an HST is beneficial, British Columbians need to be aware of the problems with the current PST. The most damaging aspect of the current PST is that it applies to business inputs as well as many of the goods and services that consumers purchase.

For example, when British Columbians purchase a bottle of BC wine, they pay the PST on the final price at the liquor store. In addition, however, the wine maker must pay PST on production supplies (inputs) it uses to make wine (i.e. bottles, labels, corks, equipment used to grow grapes, etc.).

When businesses are charged PST on production supplies and other inputs, costs increase and these increased costs are passed on to consumers in the form of higher prices. In other words, the PST that businesses pay on inputs is a hidden tax that is embedded in the price of goods and services.

The embedded sales tax is also contained in BC-made products that are currently “exempt” from the PST being charged at the till (i.e. restaurant meals, dry cleaning services, membership fees, newspapers, etc).  

The HST, on the other hand, is a “value added tax” much like the GST. That is, businesses will receive refunds (tax credits) for the sales taxes they pay on inputs. Removing the sales tax on business inputs will reduce the costs of producing goods and services in BC and these savings will be passed on to consumers through lower prices.

But don’t take our word.

Past experience with sales tax harmonization in Canada shows that businesses do indeed pass on the cost savings to consumers. In 1997, three Atlantic provinces (Newfoundland, New Brunswick, and Nova Scotia) harmonized their PST with the federal GST. Professor Michael Smart of the University of Toronto examined the effects of harmonization in Atlantic Canada and found that consumer prices in the harmonizing provinces fell after the 1997 reforms.

Not only will prices decrease, but the costs to businesses of investing in machinery, equipment, and technology (computers and software) will also be reduced. Since the PST applies to business inputs, including much of the machinery, equipment and technology firms purchase, it impedes business investment.

Under the HST, lower taxes on investments will spark more business investment and development. This will ultimately make BC workers more productive, drive up their wages, and enhance employment opportunities.

Here again, past experience with sales tax harmonization in Canada is telling. Professor Smart found that investment (on a per person basis) rose by more than 11% in the harmonized provinces compared to the non-harmonized provinces after the 1997 reforms in Atlantic Canada.

In addition, professor Jack Mintz of the University of Calgary has estimated that harmonization in BC will account for an $11.5 billion increase in capital investment and a net increase of 113,000 jobs over ten years.

British Columbians would do well to ignore the anti-HST rhetoric. The HST will improve the investment climate in the province, which will ultimately benefit British Columbians through higher rates of economic growth, more opportunities, and a higher standard of living.