Frankie Fenton CMA

Here We Go Again!

At the end of August 2011, BC’s referendum on the HST returned a very narrow majority in favour of eliminating the HST.  Unfortunately, only about half of the province actually voted, so we’re now moving back to a GST/PST regime based on the preference of only about one quarter of our population.

However, it comes as little surprise.

The fact that BC held a referendum at all, let alone the administrative concessions allowed for the outcome, all seem to point to a government bending over backwards to take back a regretted decision.

Tax policy is extremely complex.  It involves a delicate balance between administrative costs, economic and business drivers, revenue needs, and public expenditures.  It is not something that can (nor should) be boiled down to one simple question requiring only a ‘yes’ or ‘no’ answer.  Nor is it a decision that should be made by the voting public.  Not surprisingly, the public votes in favour of the wallet held in each individual’s back pocket. The public does not thoughtfully weigh the compromises that need to be made between the various  tax policy interests.  It does not gather expert opinion.  It does not compromise.

What is best for the province as a whole does not often better our wallets as individuals in the immediate.   It was no secret that while the HST did not likely generate much more tax revenue, it did result in an initial shift of the tax burden from businesses to individuals.  However such shifts can often be offset by rebates and other income tax measures to limit the impact on the poor.

Question: Are you in favour of eliminating the HST?  Translation by the Public: Do you want to pay less tax and have more money in your wallet?

Answer – not so surprising.

Now we must clean up the mess.  The $1.6 million received from the federal government to assist in the transition to HST has been allocated for repayment in this year’s budget.  The government has formed a tax panel to consider tax strategies in helping with its job creation mandate, and also consider streamlining alternatives for the new PST regime.

Business interests are not wasting time in making submissions.  Much of the business community will lobby for some form of provincial value-added tax regime.  Their success will depend on the speed at which an entirely new piece of legislation can be created, the extent to which it can be incorporated into the promises already made by Kevin Falcon, and whether any balance can be achieved between these and the remaining interests.   Now Kevin Falcon must once again find that delicate balance of interests in tax policy, and do so from behind the eight ball, and with the clock ticking.  Because everyone wants this fixed yesterday.  It sucks to be Kevin right now.

This will cost everyone.  People voted ‘yes’ because they thought it would mean paying less taxes.  Yes, perhaps less taxes paid directly at the till on personal expenditures.  But the $1.6 million to be repaid to the federal government was not just laying around earning interest.  It is going to have to come from somewhere.  Government services will suffer.  There is a direct link between the revenues collected by the government (yes, through taxes) and the public expenditures it can afford to make (duh, really?). And business now must also now incur the costs of changing over their systems again to PST.  Many businesses will likely experience increased business costs under PST, depending on the tax base and regime that are implemented.    And depending on the tax base and regime that are implemented, foreign business investment may also suffer.  When business suffers, tax revenues suffer, and we are back at government and it becomes  a vicious cycle.

The referendum could have been avoided – the government could have sent the issue to the provincial legislation assembly.  The outcome could have adhered to the original referendum rules, rather than the government accepting a simply majority outcome (regardless of participation level) as binding. The question could have allowed for a more careful polling of true public opinion.  “Would a’ . .  .could a’ . . .should a’. . . ”

Bill Vander Zalm touted the referendum as a “victory for democracy”.  Really?


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