Tax debate not over with death of HST, say business groups
Published Saturday, August 27, 2011 10:22AM PDT
If the B.C. Liberals think they've buried vote-killing tax policy debates with the crushing referendum defeat of their vaunted harmonized sales tax, they should think again.
The business lobby is gearing up for Round Two.
While Premier Christy Clark and Finance Minister Kevin Falcon were expressing disappointment over the rejection of the HST and promising a return to the old provincial sales tax and federal goods and services tax, business leaders were already looking for something new.
As the world teeters on the brink of a double-dip recession, business leaders say the last thing B.C. needs is the same old tax that put up the same old barriers to competition, job growth and investment stimulation.
"The B.C. government, I think, has got now to sit down with business and all stakeholders and perhaps develop a Son-of-HST version that is a consumption tax, that is a fair consumption tax and allow it to not have to refocus its efforts on business taxes or on income taxes, which was their goal," said B.C. Chamber of Commerce President John Winter.
He said if the Liberals simply revert back to the previous provincial sales tax system without making changes, the government will be stepping back to the 1940s when it was first announced, ignoring that the economy has changed in 70 years.
For example, taxes were originally imposed on things -- stuff. But the economy has evolved to become more knowledge-based, oriented around services. Taxing them makes sense, economists say.
"Exemptions to the provincial sales tax before harmonized sales tax really had no semblance of rhyme or reason," Winter said. "They were arbitrary. Why there was no PST on a haircut is beyond me, why there was no PST on a restaurant meal, I'm at a loss to understand it."
Falcon indicated the referendum defeat virtually killed the government's appetite for taxes, new or old.
He said the old PST at seven per cent would return by March 2013, with the haircut and restaurant exemptions back in place.
But Falcon appeared to leave some tiny wiggle room: "We reserve the right to make some administrative changes, mostly of a relatively minor nature, mostly to just bring, as best we can, 60-year-old legislation into the 21st century."
He said he intended to start negotiations next month with the federal government on a schedule for B.C. to repay the $1.6 billion it received from Ottawa to switch to the HST.
He said the defeat of the HST puts a $3 billion hole in the B.C. budget, but the government still believes it can balance the books by 2014.
Falcon did say he expects a period of government belt-tightening in order to meet the balanced budget target.
Economist John Richards of Simon Fraser University said the province can successfully revert to the PST.
Richards was one of the economists who contributed to the independent panel report that convinced the Liberals to cut the HST to 10 per cent from the original 12 per cent.
The HST combined the five per cent federal GST with the seven per cent PST.
"British Columbians are exaggerating the difficulty of adjusting," said Richards. "It's a problem, but it's not as if the sky is falling."
Credit Union Central chief economist Helmut Pastrick said the government could examine changes to the old PST system that would likely appease business.
"There's nothing to prevent a government from proposing changes, even after the old PST is in place," he said. "It's possible for B.C. to have its own input tax system. That would be a twist to it (the PST)."
Clark, however, doesn't appear ready to re-enter the tax debate arena, saying she will focus in the coming months outlining a jobs creation agenda.
"As I just informed the media, we are returning to the PST with the exemptions that existed prior to the introduction of the HST," Clark said in an email to B.C. Liberal members shortly after the referendum defeat.
"That is what people voted for and that is what will happen," the letter said.
The letter concluded with a plea for a donation the the BC Liberals: "Every dollar helps."