Backlash grows over new B.C. Liberal harmonized sales tax

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      Hansen and federal finance minister Jim Flaherty signed an agreement last month stipulating that B.C. won’t collect a seven-percent tax on “motive fuels, children’s clothing and footwear, children’s car seats, feminine-hygiene products, and books”. As part of the deal, the B.C. government will receive $1.6 billion from Ottawa to cover transition costs. The province cannot create exemptions for any more than five percent of B.C.’s estimated GST base, which, according to the NDP, will restrict exemptions primarily to the purchase of fossil fuels.

      The government has announced a five-percent rebate on new housing up to a purchase price of $400,000. This means a maximum rebate of $20,000. The Ministry of Finance has claimed there is already an “embedded” provincial sales tax of two percent on new homes, which will no longer be embedded under the HST. Publishers, on the other hand, will likely lose a provincial exemption on paying tax on purchases of newsprint and other paper.

      Meanwhile, the HST won’t apply to goods and services not covered by the GST, including prescribed medicines and diagnostic services, many health services, and nearly all food in grocery stores. This gives a competitive advantage to grocery owners—including Jimmy Pattison—over restaurant owners. Not surprisingly, the British Columbia Restaurant & Foodservices Association has urged its members to write letters to the minister of finance.

      In a recent phone interview with the Straight, BCRFA president and CEO Ian Tostenson said that restaurant-industry sales fell between seven and 10 percent after the federal government introduced the GST in 1991. “Prior to the GST coming in, restaurants had about 50 percent of the share of the food market relative to grocery stores, and that dropped down to about 39 percent,” he said. “It has never really recovered.”

      Tostenson predicted that the HST will have a similar impact on B.C.’s $10-billion food-and-beverage industry, which has been battered by an economic slowdown. He described a 12-percent tax on restaurant meals as a “negative psychological block” for consumers, who will reduce tips to servers. “We also see an effect on employment,” he said. “Restaurants just won’t be hiring.”

      Prior to the May 12 election, the Canadian Restaurant and Foodservices Association asked the B.C. Liberals and the NDP if they opposed harmonizing the GST and provincial sales tax. Here is part of the B.C. Liberals’ response: “The harmonized GST would make it harder for future provincial governments to lower or raise sales tax rates, which reduces flexibility. In short, a harmonized GST is not something that is contemplated in the B.C. Liberal platform, but we are committed to improving the tax system.” The NDP stated that it would not harmonize the GST and PST.

      Tostenson said the finance minister appears to want to mitigate damage caused by the HST. He noted that the provincial liquor tax was recently lowered from 10 percent to seven percent, but he claimed that this won’t offset the HST’s negative impact. “I think the industry is clearly saying to us, ”˜Nothing short of removal of the tax is going to work,’ ” Tostenson said. “What we’ve seen now, this isn’t so much a resturant problem. It’s a consumer problem. They’re not going to go to restaurants. The consumers have to get very engaged and demand some answers from government.”

      The BCRFA and Tostenson personally supported the B.C. Liberals during the recent election campaign when the party announced that it wouldn’t increase the minimum wage, unlike the NDP. Tostenson said that members of his association had no idea that they would face a 12-percent restaurant tax after the election from the B.C. Liberals.

      “In the words of a restaurant operator—a very well-known restaurant operator—the minimum-wage issue is nothing compared to this,” Tostenson said. “There is a real sense of disappointment.”

      Former NDP MLA David Schreck, a health economist, has compared the BCRFA’s response to the government to “a beating with a wet noodle”. On his Web site Schreck wrote that the real test of the association’s resolve will be if it moves its on-line petition to the front counter of every restaurant in the province. “That is what it would take to get noticed,” Schreck stated, “but it is doubtful whether the Restaurant Association has the political will to thump the nose of the Campbell government that hard.”


      On July 31, Minister of Finance Colin Hansen explained the implications of the harmonized sales tax for British Columbians. Interview by Charlie Smith for the Georgia Straight.

      Even though the HST has been praised by economists such as Kesselman, Campbell and Hansen face a growing backlash from others. Communications consultant and 24 hours newspaper columnist Bill Tieleman has started a Facebook group, and former Social Credit premier Bill Vander Zalm has promised to do what he can to help axe the HST.

      There was a rally against the HST on the B.C. Day weekend in Burnaby attended by NDP MLAs. The Opposition party has also created an on-line petition calling on the Campbell government to scrap plans to introduce the HST in 2010.

      The Straight visited Hansen at the B.C. government’s Vancouver cabinet office on July 31—the same day that Vander Zalm appeared on the front page of the Province newspaper holding a red “Stop” sign. Hansen said the $1.6-billion federal payment was not the reason why his government is harmonizing federal and provincial sales taxes, although he acknowledged that this would come in “very, very handy” in dealing with some fiscal challenges.

      Listen to the complete interview with B.C. Minister of Finance Colin Hansen.

      “The provincial government revenues are dependent on a strong provincial economy,” Hansen said. “What we have been told by numerous studies and economists is that the single biggest initiative we could do to stimulate the B.C. economy going forward is to adopt the HST.”

      The finance minister acknowledged that the restaurant industry has legitimate concerns, but claimed that it was “exaggerating” its case against the HST. Hansen repeatedly stated that the elimination of an “embedded PST” will give an enormous boost to businesses, including restaurants. He said that every time a company buys a chair, for example, it’s stuck paying a seven-percent provincial sales tax. That will change under the HST because businesses will claim credits for these inputs. And he claimed that this will lead to lower prices.

      “I know people are skeptical,” Hansen said. “They’ll say, ”˜Well, you know, how do you know it’s being passed on to the consumer?’ The studies that have been done about the introduction of HST demonstrate that.”

      A 2007 study by University of Toronto economist Michael Smart for the C. D. Howe Institute demonstrated that selected consumer prices, as measured by the Consumer Price Index, fell by 0.3 percent more in three Atlantic provinces that adopted the HST after 1997 when compared with the same prices in provinces that maintained retail sales taxes. The largest decrease, at 3.2 percent, was for alcohol and tobacco products. The greatest increase, at 1.5 percent, was for clothing and footwear, followed by 1.4 percent for shelter.

      “Since expenditure shares for these categories tend to be larger for low-income households, this suggests that the reform was regressive in that it raised average prices for low-income households while lowering prices overall,” Smart wrote. The B.C. government has promised that a refundable B.C. income-tax credit will be paid with the current GST credit to offset the HST’s impact on low-income residents.

      Smart’s study also noted a significant annual increase in business investment in machinery and equipment in the harmonizing provinces compared with those that retained retail sales taxes. The increase in relative business investment was transitory, Smart reported, though it resulted in a permanent increase in the capital stock of the province.

      Hansen maintained that the province needed to take action in response to the introduction of the HST in Ontario. Otherwise, he suggested, B.C. risked losing capital investment. He claimed that finance-ministry officials were looking at the HST during the “interregnum”—the election period—and he didn’t get involved in the issue until after May 12. By that time, Hansen said that it became obvious to him that the ground had shifted significantly. That’s when he started studying the implications of Ontario’s decision on the B.C. economy.

      “When we started looking seriously at this at the end of March—sorry, at the end of May—I spent a fair amount of time on-line,” Hansen said.

      Ralston said he doesn’t believe it. The NDP finance critic said that Ontario premier Dalton McGuinty announced the HST on January 29, and it was included in the March 26 Ontario budget. The B.C. election period began on April 12 with the dissolution of the legislature.

      “It’s clear they knew about it well before the election call,” Ralston claimed. “And if he [Hansen] is to be believed on his importance of the comparability to Ontario, they obviously were thinking about it well before the election.”

      Ralston noted that the B.C. Liberals told the restaurant industry before the election that they had no plans to harmonize the tax, which he characterized as a “completely and totally false” statement.

      The Straight asked Hansen for his response to anyone who might believe that B.C. Liberals had a secret agenda before the election to impose the HST to balance the budget—and that he chose not to tell the public during the election campaign. “I would say, ”˜That is absolutely untrue,’ ” Hansen replied.

      There has been talk of recalling B.C. Liberal MLAs because of the HST. Ralston, however, said this can’t be initiated under recall legislation until at least 18 months after the election.

      This means it will take quite some time—possibly not until the May 2013 provincial election—before the public can render its verdict.

      With files from Matthew Burrows and Carlito Pablo.

      Comments

      44 Comments

      Evil Eye

      Aug 6, 2009 at 8:48am

      Hey guys, has Campbell ever told the truth? In fact has he done anything honestly?

      Smartiepants

      Aug 6, 2009 at 10:51am

      Laws are only laws because governments threaten the people with force and violence if they don't comply. That already tells you a lot. Governments always terrorize their citizens and force them to do things they normally would never do. People don't need to be governed they can govern themselves.

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      Mister Hister

      Aug 6, 2009 at 11:05am

      Hey Gordo; why don't you just come over to my house with your low-carbon-footprint wheel barrel and load up on more cash. My kids don't need to eat, do they? I only have to pay the highest rental rates in Canada and now I can't even afford your damn medical system. Give us a break already we are over taxed.
      It was your grand idea to throw the world a overpriced Olympic party so why don't you give up your paycheck this year and leave the rest of us out of it. I just hope those people who voted for you finally see the light, you're a liar and you HATE ordinary people. Most of us are clinging to our jobs and you want more? We are drowning you idiot.

      L

      Aug 6, 2009 at 3:56pm

      Geez, this is scary.
      Two questions - as a freelancer, will I have to tell clients they have to pay an extra 12% on my fees (instead of 5%)?
      And, for a single individual at BC's average income rate and average expenses rate, how much will this add to our yearly average outgo?
      What about for a family of four at BC's average income rate and average expenses rate, how much will be added to their their yearly average outgo?
      I'm not interested here in the spin in how much businesses will drop their prices to compensate -- but can some math/economics person help with this info and add it into these comments? Thx

      Jaded in Vancouver

      Aug 6, 2009 at 5:48pm

      I hope that those complainers are among the 51 % of voters who showed up to cast their ballot. Otherwise, shut up; you got what you deserve.

      p'doff

      Aug 6, 2009 at 5:58pm

      Ever so disgusted..nailed again. Unrelenting tax, imposed in an ever increasing devious manner, to feed the ivory tower. HST hurts the little guy Gordo.

      ArnoS

      Aug 6, 2009 at 5:59pm

      I wouldn't mind if there were no exemptions, but it really rankles that "motive fuels" remain PST exempt while bicycles and bicycle safety equipment which were previously PST exempt will no longer be exempt. How are we ever going to reduce our ghg emissions if driving is encouraged and cycling is discouraged.

      History Buff

      Aug 6, 2009 at 6:08pm

      You make the unpopular changes at the start, by the time 4 years have rolled past, people will have forgotten, then a few months before the election you hand out loppipops, in the form of a tax cut, and get re-elected, Wacky and Soc Cred did that for years and the public falls for it every time.

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      Gary

      Aug 6, 2009 at 6:18pm

      Those vultures in Victoria and Ottaw just can't dig deep enough into our pockets, can they? No matter how much they take from the tax payer and the working guy, they always need and want us to give more. Well, I don't see Campbell or ANY politicians for that matter, stepping up to the plate and taking a wage roll back. I remember listening to Campbell on the radio when he ran for office the first time telling everyone how he came from a working family and he really knew and understood what life is all about about here in the working class. Liar! He is as far removed from that reality as the east is from the west. He's a politician - and as such, he is not accountable for anything including his own word and his promises and all that matters to him is his legacy - his precious Olympic boondoggle that we, the people and our children, will be paying for for decades. He and ALL politicians do not care or want to know how people struggle in ther working class - and that goes for the all promising NDP Party who are sucking up to the public now but I can promise you that if they were in power, they'd likely be doing the same thing. The whole system is rotten to the core and corrupt. They are cutting back on essential services to fund a sports event to pad their own pockets and the pockets of their friends. What a sick, sick joke. At least, that is my opinion.

      Astro

      Aug 6, 2009 at 6:53pm

      The BC govt is getting $1.6billion from the federal govt to implement the HST. Where did that money come from? Why it came from us. So we are bribing ourselves with our taxes to increase our taxes. There appears to be a disconnect here.
      And if this was such a great idea, why wasn't it brought forward in the election campaign?
      From Skywalker, just above, "So Fiat lux is correct. Cost can't be cut, only transferred and that presents a pretty scary scenario with the liberal fascists in Victoria."
      In this case, the cost of the HST is a double whammy. We pay the Federal govt the $1.6 billion that is used to implement the HST. An we pay 12% HST on everything we buy.
      The money is transferred twice from us to the federal and provincial govts.