The HST Debate: Does the sales tax help or hurt low-income people?



Come August 5, John Puff will vote “Yes” to extinguish the HST. A retired owner of a packaging company, the Downtown Eastside resident’s discontent lies in the cost increase of his routine expenditures. For Puff, this means that an extra seven per cent cost accompanies some of the groceries he buys and hangs on some of the clothing he purchases.


Items such as used clothing, food producing plants and ready- made meals at grocery stores are only some of the goods and services now taxed under the HST. These additions result in an increase of at least $350 a year for the average household at the current 12 per cent rate, according to the independent panel report released on May 4.


“It’s tougher to live with this tax,” says Puff. “It feels like my dollar is only worth 80 cents now.”

This month British Columbians will be voting to maintain or extinguish the HST. With the referendum deadline set for August 5, many reports, economists and politicians have speculated on the immediate and future implications of the tax, particularly for lower income people like Puff.

Director of the Canadian Centre for Policy Alternatives, Seth Klein, says that having an HST is not the problem since it can help fund public services for those in the low-income bracket, but the B.C. HST is inherently flawed in its design and quick fixes.


“Sales taxes like the HST hit lower and middle income households harder,” says Klein, accentuating each word with an index finger on his desk for emphasis. “If you have a low or modest income, you spend most of the money you have, and you spend it locally, rather than investing.”

Problematic solutions to help the consumer


The B.C. Liberals first introduced the B.C. HST Credit to offset the impact on low-income families and individuals. All people earning less than $10,000 a year, receive $230 in four installments throughout the year, or $57.50 every three months. The amount received decreases as a person’s income increases, virtually phasing out at an income level of $30,000 a year.


“And there lies the problem,” says Klein. “The threshold they set for when you no longer qualify for the credit is too low and phases out much too quickly. It’s the people in that middle range between $20, 000 and $50, 000 who deserve to be getting more of that credit.”


The government then introduced a one-time payment of $175 to help low-income seniors transition to the new HST system. All families also receive this amount for every child under 18, no matter how wealthy.


“Rather than give it to singles in need, they give it to all families,” says Klein. “It’s a huge waste of money to give it to wealthier families.”


The premier’s office says that directing these payments toward families with children falls into Premier Christy Clark’s “family first” agenda.


These immediate fixes to offset the burden of the HST still leave people like Puff struggling with his day-to-day expenses, despite his eligibility for the quarterly credit payments.


“The cheques help,” he says. “But I still have to wait for them to come every few months. It’d be better if I didn’t have to pay in the first place, up front, rather than wait to get that money back.”

Added to the HST Credit and the one-time transition payment, Clark also presented a long-term “fix.” If the HST remains, the Liberals will lower the tax by two percentage points to 10 per cent by 2014. Families will save $120 per year under the 10 per cent rate.


To be able to lower the sales tax, corporate income taxes will temporarily increase by two per cent to 12 from 10. But some critics, such as Vancouver-Hastings MLA Shane Simpson, say an increase in corporate income tax will only partially cover the loss in revenue from the two per cent drop. It will generate approximately $800 million, leaving about the same amount unaccounted for.


“If they do follow through with this plan, it’ll blow a huge hole in the budget,” says Klein. “How will they fill it? Well, they’ll cut services probably. Who most benefits from those services? Low- income people. Now they’ve taken a situation that could have been fixed, and the ‘fix’ made it worse. Rather than lower the tax rate, they just needed to expand that HST Credit to reach more people.”


Benefiting businesses creates more jobs, says the government


The HST was originally introduced with the hopes of creating a better economy. The relief from tax cuts allows businesses to take what they’ve saved and pass it on through more jobs and lower prices on goods, a strategy that might be in jeopardy if corporate taxes are set to increase.

A report released by the C.D. Howe Institute states that 113,000 more jobs will become available over the next decade. A consensus of economists provided a more conservative number with the HST boosting economic growth by 1.1 per cent and creating 24,400 more jobs by 2020.


“It happened with the HST to the eastern provinces,” says SFU economics professor Krishna Pendakur. “All firms will soon need that edge to compete in the market, which means they will lower their prices. It’ll take about 18 months to two years to see results.”


But if businesses are still recovering from a recent recession as well as foreseeing a temporary increase in corporate income taxes next year-as per government promises-they might not lower their prices by too much, if at all.


Simpson and Klein further criticize Pendakur’s logic for ignoring realities such as the international market and offshore sales.


“This might happen in some very competitive local markets,” says Klein. “But large resource industries who benefit the most from the HST deal in foreign markets and the savings will go to those consumers, not British Columbians.”


A tax system on its head


Still, both Pendakur and Klein acknowledge the need for higher taxes to create better public services. Klein wants a complete re-evaluation of the tax system, not this quick fix to a bigger problem.


A report released by Klein, Marc Lee and Iglika Ivanova on June 29 documents B.C.’s regressive tax shift over the past decade. A gradual decrease in personal income taxes coupled by an increase in other taxes such as sales tax, places an unfair disadvantage on lower and modest income people.


Higher personal income taxes mean that higher income people pay more taxes, resulting in a progressive tax. But higher sales taxes mean the lower income people who spend more locally, pay more in taxes, resulting in a regressive tax. The government needs to reevaluate how revenue is generated, shifting back from the higher sales tax to higher personal income tax.


“So the HST is only part of a flawed tax system that’s been turned on its head,” says Klein. “We’ve called for a Fair Tax Commission, where we put the whole tax system on the table. We stand back as a society and have a full conversation that asks, ‘How much money do we need to raise to pay for the things that we want to pay for together, the services, the infrastructure?’


“Instead, we’re having this debate on a very narrow question about one particular tax. That, to my mind is unfortunate.” 


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