Why HST?

Okay, I'm going to start my tenure as a blogger by addressing one of the most controversial tax issues facing Canada at the moment: the Harmonized Sales Tax, or HST. Here in BC it is particularly reviled, with around 80% of the public wishing it were replaced with smallpox or the bubonic plague. Even Ontario, which isn't particularly known for political activism, has demonstrated a rather unpleasant reaction.

What is the HST, anyway? Basically, about half of the provinces right now have their own sales tax, which is collected separately from the federal GST. For reasons which I shall get into later, three Atlantic provinces and now Ontario and British Columbia have entered into agreements with the federal government to have their provincial sales taxes (e.g. 7% in BC) merged with the GST (5%) to create a single sales tax (e.g. will be 12% in BC). This would mean that businesses only have to fill out one set of sales tax forms instead of two, which would be send off to the Canada Revenue Agency, which splits the funds and gives the provinces their appropriate share of the total amount collected.

So why all the hate? Well, for starters (and I apologize to those from Ontario, but I will mostly be using BC as a reference for expedience) Premier Gordon Campbell made an explicit election promise not to implement one. I find it rather odd that he wouldn't just come out and speak to its benefits, but then again, 'tax' may well be the new 'hidden agenda'; it's a hot potato that no politician would be caught dead with. The subsequent reversal on this promise within a very short time frame caused considerable anger. My understanding is that Ontario did not go about it in such a sneaky way, and yet they are still largely against it (about 70%, last I checked). So what else is causing the anger?

Aside from the aforementioned danger of using the word 'tax', the fact remains that people have focused in on what are considered some of the HST's uglier elements. Because the GST applies to a much broader range of goods, and because the provincial governments only have so many exemptions they can use, many things that were taxed under the GST but not PST (such as restaurant meals) will now be taxed by both. This means that prices on a few goods will go up by about 7% in BC and 8% in Ontario.

Additionally, the structure of the tax (again, more on this later) essentially means that statutory incidence - who technically pays it - shifts from businesses to consumers. Many are concerned that, while they pay more in tax on goods, businesses will be paying less and not pass on the savings. Later on I will discuss why this is not necessarily true.

Finally, it is often asserted that the tax will not be revenue neutral and instead be a net gain for government. I am going to dismiss part of that off the bat, as both BC and Ontario are going to be losing money with all of the credits and (in BC's case) income tax cuts they are using to offset it. Yes, you read correctly: the hated sales tax, promoted by greedy politicians who just can't get their hands out of your pocket, will be a net revenue loss. Whether or not it stays that way remains to be seen, but even if not I'm pretty sure we could find some schools or hospitals that could use the extra funds.

EDIT:


I must apologize, and correspondingly edit this post. I spoke with someone who has an intimate knowledge of finance and the manufacturing process, and she clarified just how the different taxes work. PST is currently not charged on any step of the manufacturing process, while GST is charged but later reimbursed. The main difference with how they function for businesses is that PST is levied on supplies and other things that are not resold or used in the manufacturing process, while GST is not. Since the HST is modeled on the GST, businesses would no longer be charged sales tax on anything that they purchase, thus saving them money. Theoretically, prices should fall as they did in the Atlantic provinces when the HST was introduced.