By Glen Korstrom
Premier Christy Clark delivered powerful rhetoric about change during a speech at her BC Liberal Party’s May 14 convention in Penticton.
She painted New Democratic Party leader Adrian Dix as a throwback to the past while energizing her partisan crowd by describing her party as capable of igniting the provincial economy in ways yet unimagined.
Few things, however, will shape B.C.’s future more than the outcome of the June 13 through July 22 referendum on the harmonized sales tax (HST).
The tax is widely seen as benefiting such sectors as manufacturing, film production, forestry and mining and hurting restaurateurs, hair salon owners and the less publicized sector of independent entrepreneurs who sell insurance or do financial planning.
Unlike lawyers who can charge the HST when they bill clients and then use that money as a credit to offset the HST that they newly pay on their lease payments, insurance agents don’t charge the HST when they bill clients and therefore must pay 7% more tax on their leases.
Mountainview Insurance Services Ltd. owner Trenton Poy told Business in Vancouver that he will pay $3,500 more each year in tax on his Abbotsford agency’s lease if the HST remains.
British Columbians could therefore be forgiven for thinking that a vote for the HST is a vote for more forestry or more film production, whereas a vote for the former provincial sales tax (PST) combined with the goods and services tax (GST) is a vote for more restaurants or more insurance brokers.
The reality, however, is that an economy that fires on all cylinders benefits all sectors.
Finance Minister Kevin Falcon recently described the economic “disaster” of going back to a combined PST and GST.
“You just can’t balance the budget without serious program spending reductions under that scenario,” he told a Vancouver Board of Trade luncheon May 26.
If voters accept the HST, Falcon projects a $769 million deficit in the 2011-12 fiscal year. That declines to a $434 million deficit in 2012-13 and a $64 million deficit in 2013-14.
Falcon intends to dip into a $450 million contingency fund and $350 million forecast allowance so that the 2013-14 budget will be balanced.
Under a PST and GST regime, however, all bets would be off.
That scenario would involve a projected $2.566 billion deficit in 2011-12, a $543 million deficit in 2012-13 and a $356 million deficit in 2013-14.
Government numbers show that the province would run a higher surplus in 2014-15 under the PST-GST regime ($405 million) than under the HST regime ($53 million).
The difference, though, is that consumers would be paying a combined 12% sales tax in a PST-GST world, whereas they would be paying 10% if the HST is kept.
Victoria would also not be sending $230 HST-rebate cheques annually to each member of low-income families.
Changes to the HST that the Clark government rolled out May 25 include:
- reducing the provincial portion of the HST by one percentage point on July 1, 2012;
- reducing the provincial portion of the HST by another percentage point on July 1, 2014; and
- issuing $200 million worth of one-time $175 cheques to all B.C. seniors who earn less than $40,000 per year and to parents who have children younger than 18 years old – one cheque per child.
Hiking corporate taxes will lighten some of that load.
Victoria will raise the general corporate income tax rate to 12%, from 10%, on January 1, 2012, and postpone the elimination of the 2.5% small-business tax rate, previously planned for April 1, 2012.