Thursday, December 10, 2009

12% HST is too low, should have been 15%

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It was predictable there would be a backlash against the HST, it seems any good government policy attracts immediate protests.

It seems a shame the government did not use the predictable anger and bring in a much higher HST. The degree of anger against the HST has no connection to any and all perceived impacts of the tax. Adding a few more points to the tax rate would not raise the the degree of anger with the tax.

B.C. should have done away with the PST years ago, so I am glad to see B.C. dropping the regressive PST for the HST which is a value added tax. I could talk at length why the HST is good for B.C., but I want to make people aware of a problem with the HST. The 12 per cent HST is too low, the government should have been bringing in an HST of at least 15 per cent.

Twelve per cent is low compared to most OECD countries there the value added tax is 18 per cent to 20 per cent.

Canada is very dependent on one major source of taxation - income taxes, personal and business. Of our federal, provincial and municipal taxes, fully one half comes from income taxes. On the federal level two thirds of the government revenue is from income taxes, more than half coming from individuals.

People in Canada pay more of their income in taxes than almost any other major country. An analysis by Jens Arnold of the OECD shows that income taxes reduce national growth rates when compared to consumption taxes.

High personal income taxes discourage saving. Other than RRSPs and TFSAs, all other saving in Canada has to be done with after tax income.

You need a number of years of good returns on your savings to make up for what you already paid in taxes. High personal income taxes also encourage people with high incomes to spend a lot of money on accountants to reduce their taxes.

A higher HST would send people a signal that favours avoiding debt to finance retail spending.

The last 10 years has seen too many Canadians buy now and pay later. There is a danger in any economy that is too dependent on debt financed consumer spending.

Short term this could be a problem for the retail sector, but in time it would equalize and eventually people would have more non-debt income to spend.

Income taxes tend to suffer more during economic bad times than value added taxes. Much of the deficit in this recession is made worse because of the volatility of the revenue sources. If consumption taxes were a higher portion of government income, we would have more even government revenues.

The current planned HST of 12 per cent will not bring in more income than what the PST and GST bring in now, though the government will have lower costs in collecting the taxes. The proposed HST will not accomplish the important shift in tax sources that we need, we will remain overly dependent on personal income taxes.

A higher HST will bring in more taxes for B.C. and allow the government to lower income taxes.

This will raise savings which will allow more money to be invested in B.C.

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