Tuesday, September 1, 2009

The HST - why I support it

There are several different types of sales taxes out there, all of them are taxes on consumption and all of them tend to regressive meaning the poorer you are the more tax you pay as a portion of your income.

Sales taxes work best when they are not too high but this means they need to be widely levied to achieve the revenues desired. A long list of exemptions only cause higher rates on the remaining items.

The existing PST in BC is a cascading vendor tax, this means the tax is levied on the full value of the exchange all along the supply change. It has long been considered unfair and damaging to businesses. An item can have the tax levied on it a number of times as it goes through the chain to the final consumer. The only beneficial thing about the PST is that is not that widely applied.

The GST, and HST once it is in place, is a value added tax, only the difference between what the vendor paid for the inputs and received for the product is taxed. Value Added Taxes are the direction that almost every jurisdiction has gone worldwide. It is ultimately fairer and reduces the government bite on the economy.

A VAT like the GST encourages more business to be on the books and registered. There is a benefit to being able to claim the GST paid for a service or good. The PST by nature encourages transactions off of the books to avoid the tax to try and avoid paying it.

Will the HST save businesses in BC money? Certainly all the ones currently paying PST will save money in no longer having to submit PST returns, the GST return process is much easier in my opinion. People that had to charge PST will also save money with the HST by being able to claim back more of the taxes they paid. This will be a huge benefit for the retail sector and any one in manufacturing.

Those of us who are self employed and operate businesses that have almost all the value added in one transaction will be paying lot more in taxes. I suspect I will be paying about three times as much HST as I pay GST now. Though I will simply be adding that cost to my bills to clients.

I like the suggestion by the Green Party to make the HST 10%, though I do not know if BC had a choice in the number involved. The Greens have been the lead on this issue and saying BC should have an HST for about five years now. Clearly they have some rational economists suggesting ideas that are worth considering.

I personally would have preferred that BC scrap the PST completely but this tax collects roughly five billion dollars a year in BC for the government, this is too big a hit from a $40 billion dollar budget to lose it.

What I have not seen in any of the information is an estimate of how much the HST will raise in BC. Now with the budget being released today, we have something to go on. The province expects to collect $5.9 billion dollars of HST in 2011/12, the first full fiscal year with no PST. In 2009/10 BC expect to collect $4.9 billion in PST in the final full fiscal year of the PST. This seems to say that an extra 20% of money will be raised by the HST than the PST. Though in 2008/09 the province had expected to collect $5.3 billion in PST but only managed $5 billion.

I also look at the HST amounts for 2011/12 and use it as an estimate of the GDP of BC and get a provincial GDP that is about $220 billion whereas within the budget documents I get to about $205 billion. This is a gap of about 7% and might mean the HST numbers in 2011/12 might be a bit high.

Taking this into mind, HST many only collect about $5.5 billion in 2011/12, roughly what the PST would have collected if it has continued.
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