Housing affordability and the Hated Sales Tax

Saturday, May 29th, 2010

New tax likely will drive deeper the underground home-reno economy, observes Greater Vancouver Home Builders’ Association CEO

Peter Simpson

Opponents of the harmonized sales tax sign petitions outside the Vancouver Art Gallery earlier this month. Photograph by: Les Bazso, Vancouver Sun / PNG

HST, OMG! Can you believe how this thorny issue -day after day after day -continues to dominate the news and commentary? It certainly has hit a raw nerve with many thousands of British Columbians.

Actually, HST has been under my skin since March 2009, when Ontario announced it had inked a $4.3-billion tax harmonization deal with the feds. I figured then, what with B.C.’s budget challenges and all, it would only be a matter of time until this province jumps aboard the HST bandwagon.

We all know what happened. On July 23, 2009, the B.C. government, without consultation, announced it had signed a memorandum of understanding with the federal government on HST implementation. In exchange, B.C. was promised $1.6 billion. The firestorm of criticism and accusations has been relentless ever since.

The Province recently published a letter to the editor from provincial Finance Minister Colin Hansen, who wrote that the Liberals did not promise during the election there would be no HST. He acknowledged his party “received dozens of surveys from organizations” and that two of those surveys (restaurant owners and home builders) asked about the HST. Further, he wrote “these surveys are answered on behalf of candidates by individuals working out of party headquarters.”

Okay, let’s back it up a tad, to just before the 2009 provincial election. The Greater Vancouver Home Builders’ Association, mindful of Ontario’s HST cash-for-compliance windfall, sent a survey to the B.C. Liberals, NDP and Green Party asking a series of election-related questions, including these two: “Does your party wish to promote HST? If so, how does your party plan to preserve housing affordability?”

The Green Party did not respond. Responses were received from the NDP (no to HST) and the Liberals.

In its response, the Liberals defended the current provincial tax system and found fault with tax harmonization. The response included: “A harmonized GST would reduce the provincial government’s ability to unilaterally adjust sales tax rates. The harmonized GST would make it harder for future provincial governments to lower or raise sales tax rates, which reduces flexibility. In short, a harmonized GST is not something that is contemplated in the B.C. Liberal platform … .”

Because the Liberals indicated they did not support harmonization, it is reasonable to assume that was the reason the second question regarding preserving housing affordability under HST went unanswered.

By the way, the responses to our questions were printed on letterhead which featured a “Keep B.C. Strong” graphic at the top, and a “Premier Campbell and the B.C. Liberals” logo at the bottom. To me, that indicates an official party line, not just some “individual working out of party headquarters.”

I was somewhat puzzled after reading the last sentence in the minister’s letter to the editor: “After the election, Finance Ministry staff brought forward new information regarding the HST that led the government to decide in July to eliminate the PST and harmonize the provincial seven-per-cent share with the federal GST.”

Here’s the thing: why did it take so long for Finance Ministry officials to compile data and bring forward new information on the HST, when all they had to do was contact their Ontario counterparts?

And I have a difficult time believing ministry staff did not brief Hansen as early as March 2009, when Ontario announced it was adopting HST -well before the B.C. election. If not, why not?

If my staff kept me in the dark for so long on such a major issue, they would have a lot of explaining to do when I found out.

The HST is expected to benefit some industry sectors, that’s a given, but consumers are choked at the prospect of paying more for products and services. From the residential construction industry’s standpoint, the HST will negatively impact buyers of new homes priced above $525,000, and will most assuredly drive deeper the already burgeoning underground cash economy in home renovation.

While the federal government has enacted positive changes affecting the economy and the residential construction industry, more should be done.

I recently sent to all Metro Vancouver members of parliament a letter, which included recommendations to enhance housing affordability and choice.

Victor Fiume, president of the Canadian Home Builders’ Association, refers to the current reality going forward as the “new normal.”

The following proposals to the MPs are intended to protect housing affordability and choice:

– Adopt a single threshold/full rebate for the GST New Housing Rebate across Canada and commit to review and adjust the threshold level over time. GST thresholds have been frozen for 19 years, and only 0.2 per cent of Metro Vancouver families qualify for the full rebate. Meanwhile, government-imposed costs account for about 20 per cent of the total price of a new home.

– Introduce a permanent 2.5-per-cent GST Home Renovation Tax Rebate available to all homeowners, regardless of the cost of the renovation. Homeowners who undertake renovations must pay GST. The temporary Home Renovation Tax Credit proved very successful by restoring fairness to tax levels and encouraging homeowners to deal with legitimate, tax-remitting contractors.

– Vigorously tackle the underground cash economy. Governments at all levels are losing billions of dollars annually due to underground cash operators. The Canada Revenue Agency admitted its current system, the Contract Payment Reporting System, is not effective against the underground economy.

To borrow a phrase from uber-contractor Mike Holmes, it’s time to make it right.

Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders’ Association. E-mail [email protected]

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