Wednesday, May 25, 2011

The difficulty of measuring the impact of the HST

The scope and scale of the impact of the HST is small enough on a normal family income as not be significant enough of an impact on the standard of living, the rise and fall of the price of gas has been much more of an impact.  

Everyone seems certain of the prices that have gone up, but at the same time many prices have fallen but that drop in price is not that easy to pin specifically to the HST.   Clearly a lot of clothes, electronics and building supplies are cheaper now than a year ago.  The net impact on prices has been to see lower prices in BC than the overall increase in inflation in Canada.   Given that BC has a growing economy and low unemployment, the province should be seeing a higher rate of inflation than the average in the country.   The stats show that the impact on the consumer economy of the HST has been neutral or possibly beneficial for consumers.   The CPI is a measure of costs for the consumer and not for industry.

Meanwhile a big benefit of the HST is the improvement of the investment climate in BC.   The sectors of the economy that will benefit are the ones that make things and the ones that are more often in rural communities.    

This is also hard to measure what one contributes to the HST and what not.   Many large scale investment decisions take years to come online.   A large scale mine project can take 10 years to get from announcement to operations.   One of the reasons many mines are delayed is that the relative costs of building the mines are not favourable at the time when they manage to get approval.  The HST improves the costs on capital investments.   One new large scale mine will increase the provincial GDP  by more than the whole film industry it will also bring in several times more in government revenues.  

Can we be certain of what mine is opening because of the HST and which not?   No, because that sort of black and white reductionist thinking is not how it works.   Few mines will open specifically open because of the HST, what will happen is that date when the mine will open will be earlier than otherwise.   If we had had the HST in the past, it is likely that one of either Galore Creek or Mount Milligan would have opened, instead neither is open yet though both are likely to open within the next five to ten years.

When it comes to the timber industry, the HST will mean mills are running for more hours in a year than they do now.   Likely not a dramatically longer amount, but by an average of about a week a year more over a full business cycle.   The HST makes lumber slightly more competitive internationally and it reduces the cost of the ongoing need to upgrade the mill, both of which improves the ability for a mill to remain open.   If the mills in BC remain open for an average of a week a year longer than now, that is worth an average of $225 million in exports from the province.   In booming years there would be no increase, but it is in the years of weaker economic activity is when we would see the improvement.

The HST will help with the boom and bust cycle in rural BC by making the bust times shallower and shorter.    You have to remember that BC is very dependent on the well being of rural BC, without it the province would financially insolvent.
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