C.D. Howe Institute New Study – British Columbia Has it Right on the HST – June 29, 2011

Toronto ON – British Columbia is on the right track with its controversial move to a harmonized sales tax (HST), according to a C.D. Howe Institute report released today. In “The Time is Still Right for BC’s HST,” authors Finn Poschmann and Alexandre Laurin say the shift to a value-added taxes mirrors patterns in most of the developed world, and helped move the province from being a high tax, investment-unfriendly jurisdiction, to one which is domestically and internationally competitive – a more attractive home for investment and jobs.

The authors assess the impact so far of BC’s move to an HST, effective summer 2010. Instead of paying a 7 percent retail sales tax – which was eliminated – and a 5 percent federal Goods and Services Tax (GST), BC residents pay a single, harmonized tax of 12 percent, with 7 percent as the provincial portion. The provincial government since has announced its intention to drop the provincial portion to 6 percent in 2012 and to 5 percent by 2014, which would bring the HST rate to 10 percent.

This HST, now the subject of a referendum, has been beneficial overall, say the authors. They report:

  • ·         Replacing British Columbia’s retail sales tax with the HST improved the province’s investment climate. Estimates of the impact anticipate more than 100,000 additional jobs over the coming decade.
  • ·         The change made the taxes that were previously embedded in business costs, and therefore invisible to consumers, explicit at the cash register. But the total price to consumers hardly budged because the lower business costs flowed through to consumers.
  • ·         Consumption taxes like the HST in BC impose smaller burdens on the economy, per dollar of government revenue, than alternatives such as old-style retail sales taxes or taxes on personal and business incomes.

For these reasons, conclude the authors, BC residents are well served by the new HST.

For the study go to: http://cdhowe.org/pdf/ebrief_119.pdf

Best Western

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