The proposal from the federal Conservatives and the provincial Liberals to create a new blended sales tax is making many people angry in British Columbia.
The federal and provincial governments are trying to say that combining the provincial sales tax with the GST to create a new 12 percent tax will create jobs and improve investment.
Ottawa is planning to spend $1.6 billion to get BC to agree to the new expanded harmonized sales tax (HST). In other words, one level of government is spending our tax dollars to bribe another to raise its taxes.
This HST clearly shifts the tax burden from business onto families and consumers. Currently, the GST is charged on more products and services than existing provincial sales tax so harmonization will increase the cost on many of the everyday things people buy for their families including funerals, restaurant meals and haircuts.
None of these services was charged in the provincial sales tax that the Liberals will rescind in exchange for harmonizing sales taxes. So where are the savings for consumers?
Value-added taxes are regressive because they affect low-income families more as they spend a greater percentage of their income even on necessities like home heating oil.
According to the Canadian Food and Restaurant Association, from its Election 2009 website, BC restaurant owners lost 9.5 percent of their business when the GST was introduced in 1991. They estimate that British Columbians will pay an additional $694 million on restaurant meals alone if the HST is introduced. That will hurt restaurants for certain. Some businesses will benefit from the introduction of the HST. The BC Construction Association recently endorsed the HST since it will reduce the input costs on construction projects. However, I think it is unfair to bring in a tax that benefits one sector of the economy over another during an economic downturn. The Premier is using one study to justify introducing this tax now. The study, by Michael Smart, found that investment in manufacturing and equipment went up after the HST was introduced in four Atlantic provinces. But as David Schreck reported in the Tyee, two of those provinces, Newfoundland and Labrador and Nova Scotia had huge investments in offshore oil and gas in the 1990s. That’s where the investments in equipment were happening.
Those investments were not as a result of the HST introduction cutting manufacturing costs, but of changes in technology that made offshore projects possible and increasing oil and natural gas prices worldwide that made offshore projects economical.
This was not just a provincial Liberal initiative. On page 166 of Budget 2009, the federal Conservatives announced that they would be trying to convince the five provinces that still had retail sales tax to move to a value-added tax system.
All the Conservative MPs voted to push provinces to move to value-added taxes when they voted for the most recent budget.