Friday, May 21, 2010

HST - are there any economists against it?

I have been reading all the info I from the people opposed to the HST and I have yet to find any serious economic arguments why it would be bad.

Based on all the evidence out there we should see

  1. 10,000 more people per year will be working, this will bring in about one third of a billion dollars in new employment income each year for at least the next decade
  2. 10,000 employed people each year will reduce welfare rolls and will increase the economy
  3. Capital investment by business will increase by about one billion dollars a year, this will increase our productivity which is something that Canada has been crap at for the last generation
  4. You will have to be earning more than $80,000 a year to be certain to paying more in taxes than you do now
  5. It will be virtually impossible for someone earning less than $25,000 a year to pay more with the HST

I have yet to see any data out there to indicate that the HST will be anything other than financially beneficial for us in BC.


Chad Moats said...
This comment has been removed by the author.
Chad Moats said...

I made a math error in my last comment.

The investment from consumers to business is $1.6B annually for $16B over 10 years.

The return on this investment is estimated at $1.4B per annum, or $14B over 10 years.

This equates to 12.5% loss on investment.

When I invest $100, I expect to get back $110, or more, after 10 years. If I get back $87.50. I won't be investing in that company again.

Can an economist explain to me, how taking $200M a year out of the BC economy is good for it?

Chad Moats said...


I am very interested on your take, as why removing $1.9 B per year from 2/3 of GDP and moving $1.4B to less then 1/3 of GDP is good for the economy? And how losing money is a good investment for BC taxpayers?

Bernard said...


I am not sure where you are getting your numbers or how what you specifically mean with them.

I am happy to comment, I just need some more detail so I do not make an error of assumptions in what you meant.

The net taxes raised through the PST and the provincial portion of the HST are roughly equal, but under the HST model economic and job growth is higher the cost to collect the tax is lower.

Bernard said...

I was also gone for the weekend, that is why I have not yet commented back to you

Chad Moats said...

The HST transfers $1.9B in tax revenue from business onto consumers.

Consumer Spending is roughly 2/3 of provincial GDP.

The expected effect should be a reduction in consumer spending of the same amount being moved into provincial revenues.

GDP: -$1.9B

The HST is a revenue loss of about $250M, in comparison to PST (2010 Budget)

GDP: -$250M

New investment and employment generated by HST is expected to be just under $1.5B.

GDP: + $1.5B

Net effect to GDP: -$650M

I like the analogy of a financial adviser selling an investment that requires you to invest $20,000 per year with an annual return of $15,000, or a loss of -$5,000.

This would be considered a bad investment. The HST delivers a similar dynamic, why is it considered a good investment?

Bernard said...

I think you are making a significant analogy error in how you look at this. A better analogy is the PST and HST change being a change in the management fee for your investment. Under the PST, the management cost is higher and therefore you need more growth in your portfolio to keep even.

The measure you are looking at is return on investment, in an economy this is measured through several possible indicators:

GDP growth - faster under the HST than the PST

Job growth - faster under the HST than the PST

Societal equity- the gini coefficient will improve with the HST.

By all measures of economic results, the HST wins out over the PST.

Chad Moats said...

I still don't see how taking $650M (net)out of the economy, every single year, is good thing.

Where is that money going?

As for the fee analogy, when does that ever exceed the amount of the actual investment?

I have also never heard that economic growth can be spurred by forcibly contracting an economy.

I have spoken to a few economists and economic profs that I know, and they all agree that my calculations are correct.

Bernard said...

The PST as it stands is a fee and only a fee, there is nothing about it that is an "investment", it is in fact a disincentive to investment.

The numbers you are working with are not right. There is no $1.9 billion movement as much of this $1.9 billion is already paid for by the consumer. The net transfer is not very large is almost all borne by members of the public that can very well afford it.

Taking less in taxation is a benefit to the economy and the public and not a negative. Saving a couple of hundred million a year in collecting taxes is a benefit to society.

You need to look at capital investments, this has been hampered in BC because of the PST - no PST, more capital investment and more economic growth. This shift alone opens up over a billion a year for investment in productivity improvements.

Your math does not work, you are mixing apples and oranges. The $1.4 billion number you use will offer the province a significant increase in taxes and will mean an increase in consumer spending.

If we were take the idea of return on investment as you seem to be doing (which is faulty to start with), if the $1.6 billion is an investment, $1.4 billion return on this investment is very, very good. BC will have gained a large amount of capital investment, which you do not include in your numbers. The $1.4 billion is the dividend on this capital.

To use your analogy, this is like investing $20,000 and getting $13,000 in interest and having a capital still worth $20,000.

You assume that capital investments have no value after the money is spent.

Chad Moats said...

Except the investor(aka consumers) are not getting the original investment back.

Do you dispute that this is a tax shift of $1.9B to consumers?

Now the PST may be borne by consumers in prices, but it is unlikely that we will see a negative inflation rate equal to the difference after July 1. In order for consumers to benefit immediately, prices would need to fall by at least 5-10%.

The fact is business, mostly large multinationals, are getting a nearly $2B windfall but the best projections are that only $1.5B will be coming back to the province.

Anyway you slice it, there is 1/2 a billion dollars lost.

If, as you say, a rate of return outlook is faulty then it shouldn't be sold as an investment in the economy.

Bernard said...

Yes, I dispute the $1.9 billion transfer as there is no data to show that this is what is happening. The net transfer is much, much smaller and will be borne by the rich. The tax shift will make life easier and more affordable for the poor in BC.

Next, as to multi nationals, what are you referring? The companies that benefit are based here. Even if it is company with an HQ somewhere else, lower cost to invest means they are more likely to invest. They are in the business to make money, the shift in taxes means they can make investments that were previously marginal because of the added PST cost.

People that are opposed to the HST want lower taxes for the rich and would prefer to see fewer people working in BC.

I have to assume you are rich and do not invest any of your wealth in BC.

In the end, your math is completely and totally wrong. Your understanding of tax economics is completely missing. I also notice that you do not have a single example of an economist to back up your errors.

Please take some time to read about the impacts of a retail sales tax versus a value added sales tax and why almost no jurisdiction on earth still has a retail sales tax.

Chad Moats said...

Yes they are likely to invest less back in BC then they are getting in reduced taxes.

The HST is a marginal revenue loser, but not even close to the amount saved via input credits.- Correct?

Input tax credits for businesses, will result in less tax paid by these businesses.- Correct?

The remaining tax revenue must come from somewhere. That somewhere with a VAT is the end user/consumer.- Correct?

A consumers ability to spend is finite. This means that the amount that is deferred to tax revenue will no longer be spent on consumption (the main economic driver in BC). Meaning that it is lost from the market to government coffers.- Correct?

With the HST being a revenue loser,at best neutral. It removes the ability of government to increase aggregate demand via increased spending from additional revenue.- Correct?

The best estimates of increase investment and employment are less then the best estimates for tax savings via input credits.- Correct?

Anonymous said...

I'm no economist but even our Prime Minister says you can't tax an economy into prosperity.

Anonymous said...

And these are the same economists who failed to see the recession coming, are they not?

Chad Moats said...


I gather your lack of reply to my questions is due to their correctness.

Bernard said...

No, your are not correct, I just have many other things I have to be doing (work, family, renovations, etc) that I am done with back and forth.

You still have no data to make any sense of what you are suggesting.

Chad Moats said...

So which statements are false?

You have yet to deal with any of my claims. You answer the question, you wish had been asked.

What data, do you require?

The numbers that I have quoted are from BC Budget 2010, BC Ministry of Finance documents, Jack Mintz's Report and your post(s).

Anonymous said...

Would have really liked to see this continue but I guess there was nothing left to say in support of the HST.

FYI: "The HST will remove over $2 billion in costs for job-supporting B.C. businesses — an estimated $1.9 billion of sales tax removed from business inputs and an estimated $150 million annually in compliance costs."

Anonymous said...

Mr. Moats suggests that removing $1.9B in taxes from business transfers those costs to consumers. The problem is that businesses operate to make a profit. Those businesses adjust their prices to recover that tax cost. The consumer ultimately pays the tax that is buried in the price, they then pay more tax when the PST is applied to the price that already included PST paid by the business.

I'm still looking for an answer to the original question ... can anyone refer me to an economist that believes the structure pf the PST (a cascading tax) is better than the HST/GST, a value added tax?