Thomson report

Good public policy does not always equal good politics. Nowhere is this more apparent than in the coverage of the harmonized sales tax.

From a policy perspective, it is widely understood that business input taxes (like the current PST) are overly complex to administer and are a drain on investment, unlike value-added taxes (such as the GST and the HST), which are simple to administer and encourage investment. However, while harmonization is good public policy that will benefit British Columbia’s economy, the transition will be challenging.

Once Ontario joined Quebec and four Atlantic provinces in implementing an HST, B.C. was left with no choice on harmonization. B.C. competes with the rest of Canada for investment dollars, and with six out of ten provinces administering a more modern and investment-friendly tax, B.C. had to make a move. The imperative to move was not only obvious to B.C. In the wake of Ontario and B.C.’s announcements, the last hold out provinces (Manitoba, Saskatchewan, and PEI) are now seriously considering making the shift.

There are many who would believe our province could operate in a vacuum, and say that what happens in the rest of Canada, or the United States, or Europe shouldn’t influence our decisions and doesn’t really impact us. But if we have learned anything from the financial crisis and subsequent economic uncertainty, it is how interconnected the global economy is. Ask any business owner in a resource dependent community what the downturn in commodities has meant to their bottom line.

It has been stated that this tax change will save B.C. businesses up to $2 billion, but many have asked why consumers should foot the bill for business. The fact is, consumers are already paying the business portion of the PST, as those costs are passed on and hidden in the final price that is rung up at the till. With an HST, businesses receive tax credits for inputs, just as they do already under the GST, which decreases the cost of producing goods. In a competitive market this should lead to decreased prices on many items. This is not a theory we know this is what happened in the Atlantic provinces once they moved to an HST.

The problem is that no tax change goes smoothly for everyone in the system. For example, some businesses, including many services, have enjoyed a tax holiday from the PST and are now being asked to charge a tax that people didn’t have to pay before. But the provincial government has recognized these challenges and offered to work with affected groups.

To date, the debate has tried to pit consumers against business. But in reality, consumers are the business community. The majority of B.C.’s businesses are small businesses employing less than 50 people. They are your neighbours, and they are the backbone of B.C.’s economy. They generate 46 per cent of all employment in the province and account for a third of the total provincial GDP.

In consultations with government, small businesses across the province have consistently made the case for a simplified and streamlined provincial tax system that maintained a competitive tax structure. Switching to the HST will achieve both these objectives.

In addition, in communities around B.C., the fortunes of small business are often connected to large-scale operations, such as mines or mills. Forestry and mining are cornerstone industries that drive the wealth of our economy. The forestry industry alone contributes $17 billion to the province’s GDP and employs 80,000 people. This tax change could save the forestry industry $140 million annually. After two successive years of record losses, additional tax savings would be a welcome relief.

There is no easy time to make a change, especially one as significant as this. But there is no better time to make it. Harmonization makes provinces more competitive. B.C. can either sit on the sidelines and be left behind the provinces that harmonize, or bite the bullet now and take advantage of the future benefits. While there will be some short-term winners and losers during the transition to harmonization, in the long-term, we all win from good public policy.

I know you want to hear all sides of a story and I thought this was well written by the B.C. Chartered Accountants. I asked them if I could reproduce their press story.

It was from Richard Rees the Chief Executive Officer of the Institute of Chartered Accountants of British Columbia.