HST impact: Businesses cite ‘trickle-down’ effect

Although many consumers are unhappy about the impact to their wallets by the harmonized sales tax, retail and manufacturing businesses in Abbotsford have a different view.

  • Jun. 6, 2011 1:00 p.m.
Mary Bayes of Western Canoeing in Abbotsford is among local business owners who are seeing benefits from the HST

Mary Bayes of Western Canoeing in Abbotsford is among local business owners who are seeing benefits from the HST

FIRST IN A SERIES

by Adrian MacNair, Abbotsford News

Although many consumers are unhappy about the impact to their wallets by the harmonized sales tax, retail and manufacturing businesses in Abbotsford have a different view.

Companies with fewer than 50 employees comprise 98 per cent of all businesses in B.C., employing over one million workers.

Mary Bayes, co-owner of Western Canoeing with 23 employees, said when the HST was introduced she had mixed feelings, mainly because the government did a poor job of educating people on the benefits.

As a result, she said there are a lot of misconceptions about how it actually affects both consumers and businesses.

“What’s good for business is good for the consumer. If businesses do well, it trickles down to consumers,” said Bayes.

As a consumer, Bayes didn’t like the idea of paying more sales taxes, but as a business owner it provides the benefit of saving money on items such as station-ery and photocopier ink.

The HST allows businesses to receive “input tax credits” for the sales tax they pay on things they need to run their business, such as new equipment and machinery. That option wasn’t available under the old provincial sales tax.

An independent panel on the HST recently estimated businesses in B.C. have saved $730 million in the first year of the tax, though it has increased the tax burden on consumers by $1.3 billion.

The other stated benefit of the HST is that it eliminates the so-called “embedded PST” that was previously added by each business in the chain of production. HST proponents say those savings will eventually be passed on to consumers, if not in lower then stabilized prices.

Even small businesses such as Hub Sports, which employs six workers, have benefitted from being able to recoup money spent on their business.

Owner Steve Yap said the HST savings have translated to the hiring of one extra employee. A return to the PST would likely result in a layoff.

Aircraft manufacturer Conair, one of the largest companies in Abbotsford, employing over 350 workers, has been able to expand its business and hire more people under the HST.

Brad Sather, vice-president of finance at Conair, said the PST was extremely complex and inefficient. The savings of the HST has allowed Conair to expand its workforce, buy more equipment and provide employee salary increases.

“The benefits aren’t just going into the shareholders’ pockets,” he said.

Yap believes most people don’t really understand whether the HST is good or bad for them because they haven’t done enough investigation.

A common confusion business owners report is over what prices were affected by the implementation of the HST.

Mike McDonald, general manager at MSA Ford dealership in Abbotsford, said it was 12 per cent tax on new vehicles before the HST and it’s still 12 per cent, even though some people don’t believe him.

McDonald said the tax savings from his business has been passed on to consumers, though he couldn’t be specific. Still, he said he notices the HST when he’s getting a cup of coffee.

“It’s a positive for our business, but I understand why people are upset,” he said.

While critics argue the HST is merely a tax shift onto consumers, economists say a broad-based, or universally applied tax, like the HST is more efficient, not just for business and government but for consumers.

Jonathan Rhys Kesselman, a public finance researcher with Simon Fraser University, has just concluded  an 11-month study on the impact of the HST on B.C. by comparing consumer prices to other western provinces.

His research found that although prices rose one per cent in the month the HST came into effect, the consumer price index declined 0.6 per cent in the following five months.

Kesselman argues this is evidence businesses have passed tax savings to consumers.

He also estimates just a one per cent rate cut to the HST would offset the impact of the new tax structure.

But despite evidence the HST has added jobs and strengthened the economy, many people are still upset at the way the tax was introduced by the government and aren’t convinced it should be kept.

Vladimir Dvoracek, department head of economics at the University of the Fraser Valley, said while almost any economist would agree a value-added tax like the HST is efficient and broad-based, the problem is political.

In an economy where 70 per cent of the gross domestic product comes from the services industry, Dvoracek said it was unrealistic for the government to suggest it would not increase taxes.

Dvoracek added that it’s difficult to believe the government couldn’t anticipate $1.3 billion in additional revenue after initially saying the tax would be revenue neutral.

Yap said B.C. should have followed Ontario’s example and offered residents a one-time cash rebate to “sweeten the pot.”

A similar approach was employed in the aftermath of the anger over the carbon tax, when the B.C. government issued $100 Climate Action Dividends to every adult and child in the province.

Instead, Premier Christy Clark recently announced a two per cent cut to the HST by 2014, an increase in corporate taxes and a delay of small business tax cuts.

Sather said the big picture is the HST is good for business and good for the province, so a marginal increase in taxes was necessary to “provide a healthier balance.”

Sather warned a return to the PST would slow company growth and create labour-intensive administrative costs for Conair.

The recession hit many small businesses in Abbotsford hard, said Bayes, but the HST has softened the blow. Although people are less willing to part with money, the cost of doing business has gone down.

She said her biggest concern of a return to the PST would be more bureaucracy, which would in turn require raising taxes elsewhere.

The HST panel said a return to the PST would cost the government $820 million in lost revenue in the first year, $1.6 billion to repay Ottawa the transitional money it received, and $35 million each year to run a new PST office.

“In fairness to the government, any discussion of tax increases is political suicide,” said Dvoracek.

Even though there’s a fiscal deficit in B.C., he said the trust deficit is even greater. When the government sprang the HST on the public following the 2009 election, people lost their faith in the Gordon Campbell government.

Dvoracek said keeping the HST makes the most sense, but whether people will punish the government in the referendum remains to be seen.

This series continues on Thursday, with local views on the HST from the service industry.

HST INTRODUCED IN 2009

The harmonized sales tax was announced by the B.C. Liberals in July 2009, two months after the party was elected to its third majority government.

It came into effect July 1, 2010, but was widely criticized by opponents, most notably former premier Bill Vander Zalm and his Fight HST petition initiative. By collecting the signatures of 10 per cent of registered voters in each of the province’s 85 ridings by July 5, 2010, the Fight HST campaign succeeded in forcing then-Premier Gordon Campbell to agree to hold a provincial referendum on repealing the HST and reinstating the former combination of seven per cent PST and five per cent GST.

Currently, the HST adds seven per cent sales tax to roughly 17 per cent of purchases made by the average British Columbian, and costs the average family about $350 more per year, according to an independent panel.

In May, Premier Christy Clark announced she would cut the HST two per cent by 2014 if it survives the referendum vote, scheduled to be held by mail-in ballot between June 24 and July 22.

According to the government, the average family will see an overall tax reduction of about $120 per year when the HST rate reaches 10 per cent.

HST IN BRIEF

About 17 per cent of all spending is subject to extra seven per cent sales tax with the HST.

Unchanged

Items that were tax-exempt (still 0%):

* Rent and mortgage payments

* Basic groceries

* Child care

* Prescription drugs

* Public transit

Items that were taxed by the GST but are PST-exempt (still 5%):

* Gasoline, diesel and other fuels

* Books

* Children’s clothes, car seats and diapers

* Feminine hygiene products

* Home energy use

Items that were already taxed by the GST and the PST (still 12%):

* Household goods, including cars, furniture, technology, appliances

* Clothing, footwear, beauty products

Changed

Routine spending that was only taxed GST before (up to 12% from 5%):

* Restaurant meals and snacks

* Haircuts and manicures

* Recreation such as movies, concerts and theatre

* School supplies

* Maintenance and repair services

* Bicycles

* Tobacco

* Professional services

* Basic cable and home phone

* Airfare

Non-routine spending (up to 12% from 5%):

* New homes above $525,000

* Realty commissions

* Home renovations and repairs

 

 

 

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