De-spinning the HST numbers

It’s not easy to sort the HST facts from the spinning by both sides in the tax debate.
Start with Finance Minister Kevin Falcon’s claim that going back to the PST would blow a $3 billion hole in B.C.’s fiscal plan over this year and the next three.
That’s a stretch. The analysis by the independent panel that reviewed the HST’s impact suggests a much smaller hit.
This column will be a heavy on numbers. But numbers matter.
The referendum will result in one of two options: A return to the old PST/GST taxes; or staying with the HST, with promised future rate reductions, some new rebates, corporate tax increases and cancellation of the plan to eliminate the small business tax.
Going back to the PST would bring some costs. The federal government took over sales tax administration when the HST was introduced; the province would have to spend $20 million to re-establish the PST collection office and about $35 million a year to keep it operating, the panel found.
Axing the tax could result in reduced economic growth, reducing provincial revenues by $80 million a year, it estimated.
And the panel noted the province would have to pay back $1.6 billion the federal government put up to encourage adoption of the new tax.
The panel — including former Alberta finance minister Jim DInning and ex-B.C. auditor general George Morfitt — judged the impact of that would be an extra $85 million a year in interest costs because of the increased provincial debt.
And, based on the panel’s analysis, the PST would deliver about $610 million a year less in tax revenue for government than the HST, even if reduced from 12 per cent to 10 per cent. (That, of course, means a saving for families.)
But the panel also noted that the government would save about $441 million a year because it could cancel the rebates and tax reductions brought into cushion the HST’s impact.
All in, based on the panel’s analysis, going back to the PST would cost the government about $362 million a year, mainly because families would pay less tax.
Falcon’s estimate is much higher. The main reason is that he concludes, based on preliminary advice from the province’s comptroller general, that the $1.6 billion would have to be repaid immediately and counted as an expense.
Accounting debates aside, the panel offers a more realistic view. Provincial taxpayers wouldn’t suddenly pony up $1.6 billion; they would pay the long-term interest costs.
The claims about impacts on families are just as muddled.
Christy Clark says the revised HST would see taxpayers pay less than under the PST.
That would eventually be true. But not until 2014. In the meantime, individuals and families would be paying more in sales taxes than under the PST.
Based on the panel’s analysis, individuals and families are paying an extra $1.3 billion in sales taxes this year because of the HST’s wider reach. (The portion of a typical families’ spending subject to provincial sales tax jumped by almost 60 per cent under the HST, the panel found.)
Even with the first rate reduction, from 12 to 11 per cent on July 1, 2012, families would still pay $690 million more in sales taxes in the next fiscal year under the HST. The following year, they would pay $430 million more than under the PST.
It’s not until the following fiscal year — 2014/15 — and another one-point cut in the rate, that families would pay less than they would have under the HST - about $330 million less. That amount would increase in future years.
So families would have spent an extra $2.5 billion in sales taxes over three years before they started seeing lower taxes than under the HST. (Rebates to low-income seniors and all families with children would reduce that by about $200 million.)
There are other reasons for voting to keep or kill the HST. But understanding the numbers is a a good starting point.
Footnote: A problem with any look at the numbers is that the government did not ask the independent panel to report on its estimates after announcing the HST rate cut and corporate tax increases. Given the government’s dismal record in providing accurate HST information, that raises serious doubts. Check hstinbc.ca for more on these numbers.