HST Hits and Myths
As BC Liberals panic, denying they made an anti-HST election promise, various false claims need correction. Here goes.
June 1, 2010
By Bill Tieleman
"I'm not a big fan of direct democracy."
- B.C. Liberal MLA Terry Lake
As the B.C. Liberal government panics in the face of overwhelming opposition to the 12 per cent Harmonized Sales Tax due to be imposed July 1, it's time to separate the HST hits from the myths.
Start with Terry Lake, the Kamloops-North Thompson B.C. Liberal MLA who chairs a legislative committee that will deal with the Fight HST citizens initiative petition that has achieved the signatures of 10 per cent of all voters in each of the province's 85 ridings.
Lake should be removed as chair after first saying that: "The committee could look at that initiative and say that it's invalid. I'm not a lawyer, but I don't know about the constitutionality of the wording of the petition, for example."
Premier Gordon Campbell had to quickly correct Lake's bone-headed misreading of Elections B.C. rules and admit the committee can't dismiss the petition. But Lake has already demonstrated his unfitness for the job.
Lake claimed that the initiative process "Gives people a voice and an opportunity to speak to government directly" before throwing under the train the Fight HST initiative led by former B.C. premier Bill Vander Zalm.
In case anyone thought Lake liked the fact that more than 600,000 British Columbia voters have signed a petition disagreeing with the HST, he clarified, "I'm not a big fan of direct democracy. What we have is a representative democracy, and I think we should work within that tradition."
Hansen’s claim of 'no promise made'
Unfortunately, Lake is far from alone in myth-representing the facts about the HST, which will add an additional seven per cent tax onto the GST of five per cent on a wide range of goods and services currently not subject to the existing Provincial Sales Tax.
B.C. Liberal Finance Minister Colin Hansen leads the pack. When asked by CKNW radio host Jill Bennett why his government had broken a promise made before the 2009 election not to impose the HST, Hansen denied it.
"There was no such promise made," Hansen claimed. "When people say that, they're not being accurate."
Hansen should talk to restaurant owners and their association, which will suffer under the extra seven per cent tax on food.
"The province broke a promise to our industry when they introduced the HST, and today they have broken another one by offering nothing in the budget to lessen the impact on our industry," said Mark von Schellwitz, vice president Western Canada for the Canadian Restaurant and Foodservices Association on March 2.
The CRFA's news release goes on to say: "During the last election the B.C. government promised the CRFA in writing that they would not introduce the HST or change taxation on food without consultation. Then, September's budget speech included a promise to work with the restaurant industry to mitigate the negative impact of the HST. So far the government has refused to act on any of the industry's recommendations."
In a May 18 letter to The Province newspaper, Hansen explained the party position this way: "What did happen? During elections, political parties receive dozens of surveys from organizations. These surveys are answered on behalf of candidates by individuals working out of the party headquarters.
"In response to two surveys asking about the HST, the answer was sent out, quite correctly, that the HST 'is not something that is contemplated in the B.C. Liberal platform.'"
Oh, I see. How could anyone think that was a promise?
Home Builders heard a promise
Hansen should also talk to the Greater Vancouver Home Builders' Association. It also asked the BC Liberal Party specific questions on the HST: "Does your party wish to promote HST? If so, how does your party plan to preserve housing affordability?"
Association CEO Peter Simpson wrote in a Vancouver Sun column that Ontario's announcement to impose an HST on new homes there had prompted concerns in his members.
"In its response, the Liberals defended the current provincial tax system and found fault with tax harmonization," Simpson wrote.
"The response included: 'A harmonized GST would reduce the provincial government's ability to unilaterally adjust sales tax rates. 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...'
"Because the Liberals indicated they did not support harmonization, it is reasonable to assume that was the reason the second question regarding preserving housing affordability under HST went unanswered," Simpson concluded.
'Harmonization has not been on our agenda'
And why would restaurant and home builders' associations or anyone else think the B.C. Liberals would bring in an HST, after past B.C. Liberal policy on the HST was clear from statements from like then -- Small Business and Revenue Minister Rick Thorpe in the B.C. Legislature on March 11, 2008, in response to a question from NDP MLA Jagrup Brar about creating a Harmonized Sales Tax:
J. Brar: "I will move on to another question. There has been a recommendation on the table of the minister about PST and GST harmonizing. I would like to ask the minister where the minister is. Is that on the table, or is there any action on that?"
Hon. R. Thorpe: "First of all, that is tax policy, which would fall under the minister of finance. But I have commented on that in the past, and I will comment on that here today, because on this particular issue, the minister of finance and I have worked extremely closely and have both said exactly the same thing to the public.
"It sounds very attractive to talk about harmonization, but one of the things that people have to realize is... I can't remember if it was the competition board or the Progress Board that estimated that flow-throughs through harmonization to taxpayers could amount to $2 billion a year.
"I think that careful consideration has to take place when you contemplate those kinds of things.
"In British Columbia we have an extensive exemption list. Under GST, there aren't exemptions.
"Let me just give you a couple of examples. One is that restaurant meals in British Columbia are PST-exempt. They are not GST-exempt.
"That is a serious question. One that I think all members in this House would have concern about is that children's clothing is PST-exempt, but it's not GST-exempt.
"Those types of decisions have far-reaching ramifications, and I can say that harmonization has not been on our agenda."
Hmmmm. So if the HST has "not been on our agenda" and could cost taxpayers $2 billion and later, in response to both restaurant and development industry questions before the election, the answer is that the HST is "not something that is contemplated" then -- hell, no -- that's not a promise!
But don't think Hansen and Campbell are the only ones who confuse a promise with a straight answer. There are others who can't even figure out what the HST will do.
Mistakes in Victoria's opinion pages
Long-time political columnist Jim Hume of the Victoria Times-Colonist is retired but still contributes to the paper. Regrettably his HST analysis misses the mark.
"We can't have all we wish for. We tailor our demands or raise taxes to fund them," Hume recently concluded after writing with tongue in cheek that B.C. would be an even greater place if the government spent far more money on public services, but without raising taxes.
The problem with Hume's conclusion that the HST will raise extra money to buy public services is simple. It's wrong. The additional income coming from applying the HST extra seven per cent will not contribute one thin dime to health care, education or social services -- because it is revenue neutral.
The same mistake has been made by other commentators who presume that all new taxes simply go to government coffers -- not true with the HST.
As Hansen, Campbell, the B.C. Business Council and other HST supporters have made clear, the HST raises $1.9 billion a year from consumers and transfers all of it to businesses.
The HST is designed to be revenue neutral to government. It is a tax shift from businesses to consumers, not a new source of income to pay for additional services.
Savings for citizens? No sure thing
The big business community loves the HST, and no wonder. Large companies will no longer pay the current seven per cent PST on the purchase of goods and services needed to produce their products and instead get "input tax credits."
And yet some claim in another HST myth that these businesses will all reduce their prices by the same seven per cent savings.
"If the tax credits are passed through completely to consumers, then the HST will be a wash for consumers as a whole -- $2 billion up and $2 billion down," wrote Kevin Milligan, an associate professor of economics at the University of British Columbia, in a recent Vancouver Sun commentary.
Milligan admits that if businesses do not pass on the savings that "consumers will face a steeper tax burden." No kidding!
But he figures, based on "textbook lessons" and "real-world evidence" that we have nothing to worry about.
I beg to differ.
After the federal Goods and Services Tax was imposed did we see huge savings passed on to anything we buy? No, just higher costs.
But the main problem is even simpler. Most big B.C. businesses don't produce the goods and services that B.C. consumers purchase, so they can't pass on "savings" to the people who are paying the extra HST costs.
Big breaks for foreign corporations
I'm no economics professor but I do know that businesses like Rio Tinto Alcan, Canfor, Timber West, Teck Resources, and others don't sell products that most of us purchase in any significant quantity.
That means that even if the price of aluminum, copper or wood products drops by seven per cent, it won't matter to individual consumers compared to paying an extra seven per cent on restaurant food, haircuts, basic cablevision, domestic airline tickets, sports and concert tickets, gym memberships, massage therapy and a huge number of other goods and services that currently are not subject to the seven per cent PST but will be taxed under the HST.
In other words, you and I will each be paying hundreds to thousands of dollars in extra HST costs -- for a total of $1.9 billion every year -- simply to subsidize Alcan selling aluminum to China!
And the only possible price reduction for most of us will be, maybe, seven per cent less on a roll of aluminum foil worth under $5!
And Campbell and Hansen still wonder why over 82 per cent of British Columbians oppose the HST?
You could ask if they're nuts. But you know they aren't.
Campbell and Hansen also think it's a myth that British Columbians will remember the HST after it's been imposed. In three years they think the B.C. Liberals can be re-elected, likely under a new leader.
I'm betting they're wrong, and that if they don't drop the HST, a recall campaign starting in November will end their re-election opportunities a lot sooner.
My biggest fan, best political advisor and toughest editor -- my mom Pat Tieleman -- passed away last week after a courageous battle with lung cancer. You can read my tribute to her here.