April 1 end of the HST draws divided response

As the PST/GST officially replaces the HST on April 1, Chilliwack residents remain divided on the issue.

Despite the fury with which people initially rejected the HST, many came around by the time of the referendum. Chilliwack voted to keep the tax by extremely thin margins. Chilliwack MLA John Les believes the referendum would again fail if introduced now. As Chilliwack prepares to return to the PST/GST system come April 1, some are lamenting the provincial public’s hasty decision to extinguish the tax. Others stand firm that the “Hated Sales Tax” won’t be missed.

The opposition began when former BC Liberals Premier Gordon Campbell introduced the tax in July 2009, two months after his re-election. This shocked voters, as the tax visibly shifted the burden of taxation from businesses, onto consumers.

“It collects the tax at a different place in the economic chain of events. It collects it at the retail end, as opposed to collecting it during the process of production,” says Chilliwack Liberal MLA John Les.

While the tax rate on most goods and services remained the same, consumers buying restaurant meals, tobacco products, gym memberships, over-the-counter medications, and other items, had to pay an additional five per cent tax.

The government argued that the HST created economic growth by making taxation more efficient, that extra income would fund social services, and that businesses would pass on their savings to consumers in the form of lower prices.

Countering, the Fight HST lobby group argued that “The HST is a regressive tax that forces middle and lower income people to pay a greater proportion of their income to acquire the same goods and services as those with higher incomes. The HST hurts poor people the most.”

Although people in the City of Chilliwack voted to keep the HST, they were profoundly divided on the issue. In the Chilliwack riding, 49 per cent voted to reinstate the PST/GST. In Chilliwack-Hope, that margin was less than one per cent, with only 127 votes tipping the scale. Provincially, 55% voted to repeal the HST.

“The government claimed it would be revenue neutral, but the claims were kind of hazy. I don’t think the public believed it,” says Vladimir Dvoracek, head of the economics department at the University of the Fraser Valley.

An independent report found that households paid an average of $350 more annually under the HST. After taking into account HST rebates and tax breaks, families paid $1.33 billion more in sales tax.

“The first year the HST was introduced, sales tax revenue went up 17 per cent,” says Dvoracek.

Most agree that the “broad-based” HST is simpler and more efficient because it taxed everything at one level. It was easier for businesses to file accounts to only one agency, and it was easier to administer for government.

The business community also believes that the HST was not around long enough for consumers to feel the full benefits.

“We know that HST is better for business in that HST, in its whole 12 percentage, is rebated back to the business on expenses related to the business,” says Keven Gemmell, president of the Chilliwack Chamber of Commerce. “It allows us to pass on savings to the consumer at the end of the day because we don’t have to pay the seven per cent provincial portion as an expense to our business.”

But Dvoracek is skeptical that the price of goods fell as a result of the HST. Businesses were largely exempt from PST already, he says, and HST provided further exemptions only to some businesses.

“There was a reduction on tax on business, and an increase on tax on person. That is true, but businesses aren’t going to remit all their cost savings to consumers. There’s nothing in economic theory that says that,” says Dvoracek.

This especially applied to businesses that did not paying tax on raw business goods, such as purchasing food to prepare at a restaurant, but later charging tax on the product to customers.

“It is directly hurting our business,” says Bravo Restaurant & Lounge owner Louie De Jaeger. “Specifically, when you didn’t have a tax on food, you put a tax on food, that directly hurts people who are selling food.”

At least in the restaurant industry, De Jaeger does not believe that businesses pass HST savings onto consumers.

Voters threw out the HST in an uncharacteristic fast and powerful sweep within two years. Campbell also resigned, and the Liberals’ approval rating going into the May 2013 election is lower than that of the NDP.

“It’s a place where real democracy worked. I never thought that there could be a recall on this, and there is. It shows that when something is brought in that people don’t like, there is a mechanism to kick it out,” says Dvoracek.

But Liberal MLA Les sees it differently.

“Political referendums are a brutal method to use to establish economic policy. We’ve learned that lesson to our eternal detriment,” he says. “I will always regret that the HST is not going to be permanent.”

The switch between two taxation systems in four years has cost business owners untold dollars, and countless headaches. B. C. also has to return $1.6 billion to the federal government, which it had received as incentive to transition to HST.

For Royal Hotel operator Leonard Wiens, the cumbersome, doubled transition process requires staff retraining. Although the HST is simple, jumping back and forth is not. The fact that tax on hotel rooms decreased by nearly one per cent under the HST was a minor benefit, says Wiens.

Businesses that sell or lease taxable goods must register for a new PST number by April 1, 2013, even if they have an old one. The government will continue to conduct free online seminars about the transition throughout April.

akonevski@theprogress.com
twitter.com/alinakonevski

 

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