Province to get $1.6 billion in transition funds
Vaughn Palmer
Sun
When the B.C. Liberals were asked during the recent election campaign if they had any plans to combine the provincial sales tax with its federal goods-and-services counterpart, they responded with an artful denial.
“A harmonized goods and services tax is not something that is contemplated in the B.C. Liberal election platform,” was the governing party’s identically worded reply to both the Greater Vancouver Homebuilders’ Association and the Restaurant and Food Services Association.
Note how they stopped well short of read-our-lips opposition to a harmonized GST.
The Liberals weren’t saying it was the furthest thing from their minds. Only that they hadn’t mentioned the possibility one way or another in their election platform.
The ruse worked until election day. But as soon as the campaign was over, provincial officials began talking harmonization with their federal counterparts, resulting in the deal announced Thursday.
B.C. will move to a 12-per-cent sales tax effective next July, combining the seven-per-cent provincial sales tax (PST) with the five-per-cent federal goods and services tax (GST). The HST, they’re calling it and some observers will wonder if the first letter stands for “higher” as opposed to “harmonized.”
Critics were quick to point out the downside of the move, with arguments the Liberals themselves had made until recently. The combination will better than double the tax bite on a lengthy list of currently PST-exempt goods and services, from restaurant meals to haircuts to (is nothing sacred?) newspapers.
Overall it means higher up-front prices for consumers, tourists, homeowners and pretty much everyone in B.C. If not from cradle (diapers would be subject to a seven-per-cent rebate) at least to grave (funeral services lose their current PST exemption.)
Asked to account for the sudden reversal of position — less than three months ago the Liberals insisted they had “no plans to formally engage the federal government in discussions about potential harmonization” — Finance Minister Colin Hansen offered multiple rationalizations.
The province of Ontario had already announced the changeover. The federal government was offering financial inducements for provinces to climb aboard the single-tax bandwagon. Ottawa insisted B.C. had to act now or there wouldn’t be time to incorporate all the necessary changes by next summer.
“B.C. cannot be left behind,” said Hansen. Other reputed benefits include reduced administrative costs for the two governments, less paperwork for business, and the better investment climate that ought to emerge from a more integrated national tax system, and so on.
But those advantages have long been pitched by advocates of sales tax harmonization, only to be dismissed outright by a succession of B.C. Liberal ministers. Former finance minister Carole Taylor: “Not on my watch.” Former revenue minister Rick Thorpe: “Not on our agenda.”
What’s changed (other than the retirement of Taylor and Thorpe) is the B.C. Liberal government’s own room to move on fiscal matters.
So long as the government was balancing its budgets, B.C. could afford to go its own way on tax policy.
Slumping revenues, combined with rising spending pressures, means that the province could no longer turn up its nose when the feds dangled a financial inducement for sought-after policy changes.
In recognition of the benefits to the Canadian economy of an emerging national sales tax regimen, Ottawa established a formula to provide transition money to provinces that agreed to harmonize. In B.C.’s case, it works out to $1.6 billion, which the province will be free to spend any way that it sees fit.
Just the thing for a government that was recently forced to admit it can’t possibly hit a promised $495-million deficit target amid demands for hundreds of millions of dollars worth of additional spending on health care and other programs.
“It will help with our fiscal challenges,” Premier Gordon Campbell admitted. “We don’t have to take it all at once,” added an obviously relieved Hansen.
Both insisted that the province won’t realize any additional revenues from its share of the combined tax. Any new revenues will be offset by credits, exemptions and other changes to ensure no net increase in overall provincial sales taxes.
Individuals won’t be hit as hard as they might think either, they argued. A share of current sales taxes is hidden in prices. The harmonized tax has the singular advantage of putting everything up front.
Still, Hansen concedes he is facing a “hard sell” in persuading British Columbians to accept a hefty jump in an already unpopular tax with no obvious payback to the consumer. “There will be a lot of people taking pot shots at this,” he forecast.
Perhaps that is why the minister and the premier held off saying precisely how they would make use of that $1.6 billion transition money. Maybe to maintain programs. Maybe to reduce the deficit.
Or they might take the lead from the Ontario government, which has been using the transition money to cushion the financial blow for consumers and provide direct cash rebates of up to $1,000 to provincial taxpayers.
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