afransen
Senior Member
Thought some people might be interested in some more intelligent media analysis of the HST. This is from the BC perspective, but the issues are quite similar here in Ontario.
You can love it or hate it but the HST is good public policy
Vancouver Sun
September 1, 2009
Personal income tax is the single largest source of provincial government revenue.
Individual taxpayers contributed $6.2 billion in the last budget, representing about one-third of total taxation revenue, giving Victoria the financial wherewithal to spend $15 billion on health and $10 billion on education.
Statistics Canada says the top 10 per cent of income earners pay 52 per cent of all taxes.
Half the population in B.C. pays no income tax at all.
It is obvious from these facts that taxes paid by high-income individuals are crucial to the standard of living of British Columbians.
It should also be clear, even though it has been missing from the debate, that the harmonized sales tax is intended to ensure that B.C. is able to maintain and create employment that pays people well.
The average annual wage in B.C.'s mining industry is $112,000, an income that attracts the highest marginal provincial tax rate (and second-highest federal rate).
Highly paid work is equally found in forestry, manufacturing and oil and gas.
It's no accident that these industries are singled out to benefit from the introduction of the HST.
Collectively, they will save approximately $1.9 billion with the removal of provincial sales tax from business inputs.
The PST is an embedded cost to producers and that makes them uncompetitive not only in export markets but here at home, where they battle for market share against foreign rivals who have not been burdened by similar taxes.
In other words, by retaining the antiquated provincial sales tax, we disadvantage local companies at home and abroad.
Moreover, the evidence from the Atlantic provinces, where the harmonized tax was introduced in 1997, suggests the tax shift raises capital investment, which in turn boosts productivity.
B.C. lags the rest of Canada in this important measure of the efficiency of production.
Many analysts agree that future economic momentum will come increasingly from productivity gains rather than employment growth. The B.C. government claims the HST is equivalent to a 40-per-cent tax cut on business investment, which should propel productivity improvement going forward.
Baldly stated, more competitive businesses create high-paying jobs and generate tax revenues needed for essential services like health care and education.
There is plenty to criticize in the manner and method Gordon Campbell's Liberal government chose to introduce such a dramatic change in direction; that is, by decree issued unexpectedly in the first year of a new term with the legislature in recess.
Regardless of any political missteps, however, the HST is sound public policy.
It is pointless to try to conceal the fact that some goods and services that were exempt from provincial sales tax will now be subject to the harmonized tax, making them more expensive for consumers.
But economics is all about trade-offs. Without the $1.6-billion transition payment from the federal government, the reduction in administrative costs for government and business and the incentive to maintain highly-paid employment, it is more than likely personal income taxes would have to go up.
Perhaps an income tax cut might have made the HST a little more palatable at the outset, allowing it to be characterized as revenue neutral, like the carbon tax.
In any case, the burden on consumers may not be as significant as it's made out to be.
For example, homebuilders are particularly concerned about HST because they estimate it will increase the cost of a $600,000 home by $42,000, or $22,000 after the maximum $20,000-rebate the government has proposed.
However, the cost of construction should be substantially lower because the HST on building materials will be eliminated by an input credit.
Presumably, some builders will pass on these savings.
Resale homes are unaffected by the HST, although fees for legal and related services would attract the tax.
Given the high cost of housing and the added "closing costs" associated with a real estate sales, Victoria could soften the blow by increasing the threshold at which the HST kicks in and/or reducing the Property Transfer Tax.
The restaurant industry is also upset that the HST will apply to restaurant meals, which have been exempt from PST, a tax that restaurants in most other jurisdictions have paid for many years.
Unfortunately, there is no public policy goal to be realized by continuing to exempt this industry.
Money not spent on restaurant meals will be diverted to other uses. There's no negative macro-economic hit if the restaurant industry contracts, as one analyst bluntly put it.
Here again, the government could ease the pain by reducing payroll taxes like Workers Compensation premiums and urging the federal government to reduce Employment Insurance premiums.
B.C. needs coffee shops, restaurants and condo developments.
But we also need to produce goods and services such as base metals, lumber and high-tech gadgets the rest of the world wants to buy at competitive prices.
The best thing the government can do to induce that outcome is to tax consumption rather than production and investment.
And that's what the HST does.
© Copyright (c) The Vancouver Sun
You can love it or hate it but the HST is good public policy
Vancouver Sun
September 1, 2009
Personal income tax is the single largest source of provincial government revenue.
Individual taxpayers contributed $6.2 billion in the last budget, representing about one-third of total taxation revenue, giving Victoria the financial wherewithal to spend $15 billion on health and $10 billion on education.
Statistics Canada says the top 10 per cent of income earners pay 52 per cent of all taxes.
Half the population in B.C. pays no income tax at all.
It is obvious from these facts that taxes paid by high-income individuals are crucial to the standard of living of British Columbians.
It should also be clear, even though it has been missing from the debate, that the harmonized sales tax is intended to ensure that B.C. is able to maintain and create employment that pays people well.
The average annual wage in B.C.'s mining industry is $112,000, an income that attracts the highest marginal provincial tax rate (and second-highest federal rate).
Highly paid work is equally found in forestry, manufacturing and oil and gas.
It's no accident that these industries are singled out to benefit from the introduction of the HST.
Collectively, they will save approximately $1.9 billion with the removal of provincial sales tax from business inputs.
The PST is an embedded cost to producers and that makes them uncompetitive not only in export markets but here at home, where they battle for market share against foreign rivals who have not been burdened by similar taxes.
In other words, by retaining the antiquated provincial sales tax, we disadvantage local companies at home and abroad.
Moreover, the evidence from the Atlantic provinces, where the harmonized tax was introduced in 1997, suggests the tax shift raises capital investment, which in turn boosts productivity.
B.C. lags the rest of Canada in this important measure of the efficiency of production.
Many analysts agree that future economic momentum will come increasingly from productivity gains rather than employment growth. The B.C. government claims the HST is equivalent to a 40-per-cent tax cut on business investment, which should propel productivity improvement going forward.
Baldly stated, more competitive businesses create high-paying jobs and generate tax revenues needed for essential services like health care and education.
There is plenty to criticize in the manner and method Gordon Campbell's Liberal government chose to introduce such a dramatic change in direction; that is, by decree issued unexpectedly in the first year of a new term with the legislature in recess.
Regardless of any political missteps, however, the HST is sound public policy.
It is pointless to try to conceal the fact that some goods and services that were exempt from provincial sales tax will now be subject to the harmonized tax, making them more expensive for consumers.
But economics is all about trade-offs. Without the $1.6-billion transition payment from the federal government, the reduction in administrative costs for government and business and the incentive to maintain highly-paid employment, it is more than likely personal income taxes would have to go up.
Perhaps an income tax cut might have made the HST a little more palatable at the outset, allowing it to be characterized as revenue neutral, like the carbon tax.
In any case, the burden on consumers may not be as significant as it's made out to be.
For example, homebuilders are particularly concerned about HST because they estimate it will increase the cost of a $600,000 home by $42,000, or $22,000 after the maximum $20,000-rebate the government has proposed.
However, the cost of construction should be substantially lower because the HST on building materials will be eliminated by an input credit.
Presumably, some builders will pass on these savings.
Resale homes are unaffected by the HST, although fees for legal and related services would attract the tax.
Given the high cost of housing and the added "closing costs" associated with a real estate sales, Victoria could soften the blow by increasing the threshold at which the HST kicks in and/or reducing the Property Transfer Tax.
The restaurant industry is also upset that the HST will apply to restaurant meals, which have been exempt from PST, a tax that restaurants in most other jurisdictions have paid for many years.
Unfortunately, there is no public policy goal to be realized by continuing to exempt this industry.
Money not spent on restaurant meals will be diverted to other uses. There's no negative macro-economic hit if the restaurant industry contracts, as one analyst bluntly put it.
Here again, the government could ease the pain by reducing payroll taxes like Workers Compensation premiums and urging the federal government to reduce Employment Insurance premiums.
B.C. needs coffee shops, restaurants and condo developments.
But we also need to produce goods and services such as base metals, lumber and high-tech gadgets the rest of the world wants to buy at competitive prices.
The best thing the government can do to induce that outcome is to tax consumption rather than production and investment.
And that's what the HST does.
© Copyright (c) The Vancouver Sun