HST Vote Gives BC A Fiscal Headache

by Mike Godfrey, Tax-News.com, Washington

15 September 2011

British Columbia’s decision to scrap its harmonized sales tax (HST) system will hit the province’s revenues, raise the deficit and result in higher debt levels, the Ministry of Finance has said.

The recent release of British Columbia’s first quarterly report for the 2011/12 financial year shows that the government expects GDP to grow by just 2% in 2011 and by 2.3% in 2013. Revenues are forecast to increase by an average of just 2.8% annually over the next two years, compared to the Budget 2011 projection of 3.3%. Lower natural resource revenue and commercial Crown corporation income, partly offset by improvements in taxation and other revenue sources, mean cumulative losses projected at CAD537m (USD542m) over the three years of the fiscal plan before the impacts of returning to the PST are factored in.

The decision to extinguish the HST and revert back to the PST is forecast to increase the cumulative losses to more than CAD2.3bn by 2013-14, with further losses anticipated in the following year not covered by the current fiscal plan. This includes CAD1.6bn in 2011-12 associated with reimbursing the federal HST transition funding and a more than CAD700m loss from lower tax revenue and increased spending over the three years ending 2013-14.

British Columbians rejected the HST regime in a referendum this summer, with 54.73% voting to return to the previous system. Under the old sales tax regime, provincial sales tax (PST) was charged at 7%, with the federal general sales tax (GST) levied at 5%. The HST blended the two taxes, resulting in an overall rate of 12%. The transition back to PST/GST is expected to take around 18 months.

Falcon said of the report:

“With 10 years of strong fiscal management, British Columbians have built a stable economy that creates jobs and opportunities. The challenges posed by the global economic conditions and the return to the PST are significant, but by working together as a province we can make the tough choices necessary to deliver priority programs with a balanced budget.”

“Recent events in Europe and the US show that all governments need to be disciplined with spending our public’s tax dollars and increasingly financial markets will punish those who ignore sound financial management. That’s why we are taking a close look at all areas of government to ensure we are delivering the priority programs and services to British Columbians as efficiently, effectively and affordably as possible.”

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