BC Finance Minister Defends HST

by Mike Godfrey, Tax-News.com, Washington

01 August 2011

With British Columbia in the midst of a referendum on the future of its sales tax regime, the province's Finance Minister has outlined his reasons why electors should vote to keep the current harmonized sales tax (HST) in place.

Kevin Falcon says that he intends to vote "no" in the referendum, which poses the question on whether to "extinguish" the HST and reinstate the previous provincial sales tax (PST)/general sales tax (GST) system. As Falcon clarified, voting "no" will mean the retention of the HST, whereas voting "yes" will mean it is scrapped in favour of the PST/GST.

The HST was introduced in July, 2010, blending the 7% PST with Canada's federal GST, set at 5%, resulting in an overall rate of 12%. However, the unpopularity of the tax resulted in the current referendum being called, the results of which will be binding.

Shortly before voting opened last month, Falcon pledged that were the system retained, the government would slash the HST rate by 2%. This would take place in two stages, over the next three years. The PST portion of the tax would fall to 6% on July 1, 2012, and then drop to 5% on July 1, 2014.

Falcon has again reiterated that, if the referendum results in a majority "no" vote, the province will issue transition payments to ease the tax burden until the rate drops. Families will receive a payment of CAD175 (USD184) per child, and seniors with annual incomes of up to CAD40,000 will get CAD175. Earlier government estimates put the cost of such payments at CAD200m. These measures will only be brought in if the HST is retained; there would be no comparative reduction in any reinstated PST/GST rates.

In an effort to bolster support for the HST, Falcon has set out a number of additional reasons why the HST regime works for British Columbia. Importantly, he admits that the government did a "poor job" in introducing the tax, but he stressed the need to focus on what is "right for the province". According to him, nine of the ten fastest-growing economies in the world use an HST-type consumption tax, along with 140 countries around the world.

In addition, Falcon says that voting yes would result in a bureaucratic and expensive dual-tax system. Instead, the HST regime involves the government "taking a balanced approach by lessening the burden on families and shifting some of the burden onto business." Falcon also argued that an overwhelming number of businesses support of the HST, and are in favour of its retention.

According to Falcon, "the HST is a better tax because it is simpler and more progressive, which means these companies save money and can add jobs". In his opinion, keeping the HST will help maintain the province as an investment destination, and result in more high-paying jobs.

The postal ballot closes on August 5.

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