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Why We Think the HST Would Have Been Good for BC (and still could be)
On May 25, 2011, the BC government announced in a news release that if the HST is kept, the rate will be reduced to 11% on July 1, 2012, and to 10% on July 1, 2014. Also, one-time payments of $175 per child will be issued to families with children under 18 years old, as well as to low- and modest-income seniors. This will be offset by an increase in the general corporate income tax rate from 10% to 12% effective January 1, 2012, and a postponement of the reduction in the small business tax rate to zero% planned for April 1, 2012.
The reduction of the HST to 10% and the issuance of one-time payments were included in a binding motion passed in the BC legislature on May 31, 2011. See the Ministry of Finance news release.
We thought this would probably convince the HST haters to vote NO to reinstating the PST, because who would want to keep the higher tax? However, the result of the BC HST Referendum was a return to the archaic PST system.
All the same, we'll still present the reasons why we think the HST is a good thing.
Bruce Hurst, FCGA, Chair of the Certified General Accountants Association of British Columbia, explained in a news article "Why I am voting in favour of the HST". One of his points was "In my view, the consumer either pays the tax directly via a value-added tax like the HST or indirectly through a tax embedded in the cost of the product. Either way the consumer pays the tax."
Why is the PST bad?
Much of the cost of the PST to consumers is hidden, by being embedded in the costs of businesses. This includes the PST on the cost of gas, computers, equipment, furniture and fixtures, shelving, vehicles, consumables such as office supplies, services to repair computers, equipment, etc.
This means that we have been paying hidden PST costs even on those items on which PST was not added to the selling price, such as restaurant meals, movie tickets, sporting events, haircuts, etc.
It was not only a tax on consumers, but a tax on business investment. If a business wanted to purchase assets to build a business and hire employees, it would have to pay PST on those assets. This means that the business has to charge more for its products, to recover the cost of the PST. The other option would have been to start the business in a more tax-friendly locality.
Note that large businesses, with taxable sales over $10 million, will not be able to recover the provincial portion of the HST completely until July 1, 2018, due to the rules on restricted input tax credits (RITC). These rules apply to specified property or services, which generally means a road vehicle, energy, a telecommunication service, or meals or entertainment. No recovery of the provincial portion of the HST on specified property or services is available to large businesses until July 1, 2015, and the amount recovered increases each year until the restrictions are removed effective July 1, 2018.
Although the HST means less work for accountants, most of them will tell you that they are in favour of keeping it.
BC Tax comparison 2000 to 2011 - see the change in income tax levels from 2000 to present.
Why the HST is good
Reducing government spending
 | To reduce personal income taxes, government spending must be reduced. |
| To reduce government spending, bureaucracy must be reduced. |
| Getting rid of the PST eliminates an entire bureaucracy - laws, regulations, court cases about the PST, civil servants (processing payments, auditing, answering questions from businesses who can't understand the complicated rules, etc.) |
| If you want to keep hiring more civil servants, vote to bring back the PST. |
Increasing government revenues
| The government collects more income tax if more people are working in the private sector and earning more money. |
| Businesses which are profitable can hire more employees. |
| With the HST, businesses now recover the 7% paid on assets and consumables used in the business. |
| If businesses are attracted to BC because of the lower tax base, more employees are hired, reducing the unemployment rate. |
| When there are fewer people looking for jobs, wages increase because businesses are competing for employees. |
| The government gets more revenue, because they are receiving more income tax from businesses and employees, and paying out less in unemployment insurance and social assistance. |
Is it costing individuals more?
| Low income individuals will receive a net benefit
from the move to HST, because they receive the BC HST credit of up to
$230 per person per year, and the majority of their spending is
unaffected, such as
|
| All individuals benefit from the increase in the basic personal amount income tax credit, which reduces income tax by about $80 per person per year. |
| High income people pay the most HST, because they spend the most. However, the proposed rate reduction should mean that the majority of us will eventually pay less under the HST. |
| Since the HST was introduced, the BC inflation rate has gone up 2.6% - this is comparing April 2011 to June 2010. This is the second lowest inflation rate for this period for all provinces, and it is lower than the Federal rate of 3.1%. |
Revised: September 20, 2024