Bend Over, Harmonized Sales Tax Coming

Last modified on July 23rd, 2009

British Columbia just announced that they are going to be switching to a harmonized sales tax model in July of next year. Basically, instead of having a provincial sales tax (PST) of 7%, and a goods and services tax (GST) of 5%, they are going to have one combined tax, a harmonized sales tax (HST) of 12%.

I’m no economist, but that seems like a pretty bad idea. Here’s a quote from the official release:

This is the single biggest thing we can do to improve B.C.’s economy,” said Premier Gordon Campbell. “This is an essential step to make our businesses more competitive, encourage billions of dollars in new investment, lower costs on productivity and reduce administrative costs to B.C. taxpayers and businesses. Most importantly, this will create jobs and generate long-term economic growth that will in turn generate more revenue to sustain and improve crucial public services.”

Huh? How does it create jobs? Maybe it’ll create more government jobs, since they’ll be swimming in a bit more cash, but I don’t really see how it helps most people. In fact, if anything the consumer gets hurt more here, since they’ll probably start paying 12% tax on some items that used to cost 5% or 7%. And if the plan is to implement some kind of point-of-sale rebate system, I think that will completely defeat the purpose of trying to lower administrative costs. I know as a web company we’re not required to charge PST on some items, so effectively most of our invoices only contain GST — with the new system, we’ll probably have to charge 12% HST on most items.

Here’s another great quote:

B.C. will have the lowest Harmonized Sales Tax (HST) in Canada, by combining the seven per cent B.C. Provincial Sales Tax (PST) with the five per cent federal Goods and Services Tax (GST), for a single sales tax rate of 12 per cent. All other provinces with an HST, and the one proposed by Ontario, have a rate of 13 per cent.

So, only a few provinces have an HST, and yes, BC will probably have the lowest HST value in the country. But it’s far from the lowest tax rate in the provinces. I mean, Alberta doesn’t pay any PST, so if you really want to compare apples to apples, you’d have to say that an HST implementation in Alberta would only be 5%, much lower than BC’s HST rate of 12%. I mean, it’s kind of like sliding all your toys under the bed and then telling your mom that you cleaned your room.

It’s estimated the HST will remove over $2 billion in costs for B.C. businesses.

Maybe, but I bet it’ll transfer over $2 billion in costs to B.C. consumers.

That includes an estimated $1.9 billion of sales tax removed from business inputs, which enhances competitiveness, increases investment and productivity and, ultimately, increases prosperity.

It’ll increase prosperity? Wow, that’s some economic outlook.

Anyways, I’d be curious to hear some thoughts from people obviously more knowledgeable in the field of economics than I am.