Repealing the harmonized sales tax in British Columbia would cut $5 billion from provincial revenues, which would have to be replaced by reintroducing the antiquated provincial sales tax and likely hiking everything else from medical plan premiums to income taxes, say internal government documents.
The documents prepared by the provincial Treasury Board in August said that without those tax hikes, there would need to be "dramatic" cuts to provincial programs.
"$5 billion in annual HST/PST revenue would have to be replaced," said the documents, released Thursday in response to a freedom of information request by the Globe and Mail newspaper.
"Dramatic increases to existing taxes would be required to maintain expenditure levels."
The documents said, for example, that personal income taxes would need to almost double, residential school property tax would need to increase nearly eight-fold and fuel taxes, six.
The documents did not specify how much of that revenue loss would be made up by reintroducing the provincial sales tax, although they acknowledged that the "complex, problematic, antiquated and uncompetitive sales tax regime" is an alternative.
NDP finance critic Bruce Ralston suggested the estime of the financial impact is disingenous, since the question voters will be asked in a referndum on the tax calls for the tax to be replaced by the provincial sales tax and the GST.
"These documents that suggest that you stop the HST dead in its tracks and then there'd be no PST in to replace it and there'd somehow be a gap in between, I just think that's a doomsday scenario. That would not happen, there'd be a transition," Ralston told a Vancouver radio station.
Ralston also said B.C. could work out a deal with the federal government to avoid repaying the $1 billion in transition funds.
However, the documents said reintroduction of the PST would elicit complaints from business and consumers adversely affected by that tax.
The province would have to repay $1 billion it received from the federal government to implement the HST, and would forego another $600,000 promised for next year, said the discussion paper.
The scenario laid out by the tax policy branch also said the province would lose $30 million in administrative cost savings and could have to refund the HST that has already been paid.
Repealing the harmonized tax could also open the door to legal action from businesses that have entered into contracts based on the HST input tax credit model, it said.
There would also be economic and political repercussions, the documents warned.
"Gov't (sic) would need to be ready to defend fiscal management and leadership 'flip-flop,"' said the discussion paper, which was sent to an official in the Finance Department on Aug. 30.
B.C. residents will vote in a referendum on the HST next September, after more than 500,000 British Columbians signed an anti-HST petition earlier this year.
The public backlash over the tax led Premier Gordon Campbell to announce last week that he will step down as soon as the BC Liberals can choose a new leader.
Typically, such a referendum wouldn't be binding but Campbell has said the provincial government would abide by the majority vote.
The government plans to spend the next year selling the public on the HST, even as the tax is expected to become a central issue in the Liberal leadership race.
