Harmonized Sales Tax (HST) deserves to be debated

27 May 2010 -- Regarding the Harmonized Sales Tax (HST), I am writing in the hope that an actual dialogue on the issue may yet break out amongst British Columbians. Personally, I support the move to modernize the Provincial Sales Tax (PST) by converting to a value-added model and harmonizing it with the Goods and Services Tax (GST). I am saddened, however, by the vitriolic, deliberately polarized bickering that has characterized commentary to date.

In my view this is in part due to our provincial government having opted for a too passive approach to informing B.C. voters about the pros and cons of this initiative.

Where the matter should have been subject to reasoned debate instead, those whose only currency is fear and willful ignorance have occupied the void where useful information should be found.

We should rename the Harmonized Sales Tax the Hysterical Sales Tax.

Based on a common sense reading of the proposed change, following are some of the reasons I support Harmonized Sales Tax.

1. Less tax will be collected on most transactions under Harmonized Sales Tax. A simplified example: with our multi-tiered Provincial Sales Tax, an item priced at $10 by a manufacturer will sell to a retailer for $10.70 after Provincial Sales Tax (assuming a non-B.C. manufacturer to avoid embedded PST issues). If then marked up 100 per cent by a retailer (used to keep the math simple), the retailer must sell for $21.40 to recover all costs, a price to the consumer of $23.97 after Provincial Sales Tax (PST) and Goods and Services Tax (GST). The same item under Harmonized Sales Tax need have a retail price of only $20 (no Provincial Sales Tax to be recovered or marked up) or $22.40 after Harmonized Sales Tax. The Provincial Sales Tax (PST) is so complex, this example can't begin to capture all possible permutations but the basic principle holds.

2. The concern that Harmonized Sales Tax will reduce affordability of real estate is misplaced. The higher rebate threshold ensures that new homes under $525,000 will be unaffected by the change - surely this is the market segment, even in the Lower Mainland, where affordability is an issue. More importantly, the tax will only apply to new homes - even in boom years this represents only a fraction of sales from existing inventory. Post harmonization, re-sales will still not be taxed on the sale price.

3. It is a myth that businesses pay tax or that a reduction of business taxes represents a "transfer of wealth" to those businesses. For a business to stay in business, it must recover all costs. Taxes are just another cost - if not recovered through sales the business ceases to serve customers and employ workers. There really is "just one taxpayer" and every time we consume goods or services, we pay those business taxes as well.

4. A standalone PST represents a significant administrative burden on all B.C. businesses. This burden falls disproportionately on small businesses, the backbone of any modern economy. Harmonized Sales Tax (HST) will reduce this waste of resources.

5. No well run business will alter its operations due to Harmonized Sales Tax. Restaurants will survive a $0.35 increase on a $5 meal or even a $7 increase on a $100 meal. This before adjusting for layered PST now embedded in their costs.

6. The great majority of transactions are already subject to Harmonized Sales Tax equivalent taxes and, as above, also unseen taxes on taxes. Except for the astounding addition of used cars and trucks, the list of items newly taxed is small and will have limited impact on our financial lives. For those at lower incomes for whom some of the changes could be material, rebates through the income tax system will provide relief.

The potential benefits are significant for the substantial majority of B.C. citizens and for the provincial economy as a whole.

A conscientious review is also in order to ensure we mitigate effects for individuals for whom the impact may be negative.

My great hope is that the energy and resources now being devoted to turning back the Harmonized Sales Tax could be re-directed to ensuring improvements for consumers and in investment, employment, innovation, and growth are fully realized.

Who knows what they might accomplish if focused on optimizing the benefits of the new regime instead of just saying No?

Given the tendency for attacks to substitute for substance-based dialogue on this issue and in the interest of full disclosure, please know that I am not affiliated with any party or group or business - my wife and I are retired and rely almost exclusively on our savings to see us through to our eventual demise.