I used to get emails from outraged people saying they were going to be forced to pay an extra $10,000 per year because of the HST. I thought - wow, you must get a lot of haircuts, but it wasn't all that funny. It showed how confused people were, and probably still are, about the HST. Now it's true, the HST does hit more goods and services with an additional 7%, but only on about 20% of what we buy. The cost of 80% of what we buy is not affected by the change to the HST. Yes, the HST will take more out of your pocket but unless you put a new roof on your house, not anywhere near $10,000.
To explain all this, the government commissioned a report to lay out the facts about the HST before the referendum.
I would encourage people to take a look at it as it also lays out the many ways the government gouges us. The provincial government alone will take $41.3 billion of our money this year. The HST accounts for about 14%, personal income tax about 14%, other taxes such as the carbon tax and sin taxes like tobacco and alcohol taxes take another 14%, another 21% is taken from another "other" category of taxes such as the health tax, and 7% comes from Crown Corporations like BC Hydro and ICBC, which of course, also get their money from you and me.
Then the report goes on to justify why government takes so much of our money away. Government spends on our needs (as if a bunch of politicians and bureaucrats know what we need better that we do). Where most of our dollars go is to health care and education spending. Health care takes up about 42% of the provincial budget and education about 27%. While it's true, we all need medical care when we are sick and kids need education, it doesn't follow that we need state hospitals and state schools.
If you've ever wondered why services provided by government get more expensive every year, it's because in a state system, priorities get skewed. In the current state hospital system, we have people languishing and dying on wait lists. Sure we're told we have universal access to health care, but access to a wait list is not access to health care. We need to address the inefficiencies of the system - not just feed it more money. For example, eye doctors make more than brain surgeons and some school board superintendents make $250,000 per year. In 2010, one assistant superintendent made $600,000. Until this gets straightened out, taxes will continue to rise.
What else does the Dinning report show?
We already knew the average person would pay more with the HST. The report showed the tax is going to take an extra $350 dollars per year out of the pockets of families. We also already knew people with high incomes would pick up the bulk of the HST. The report showed more than half of the HST is paid by families with incomes over $80,000 per year. We also already knew people with low incomes would be better off. The report showed people making less than $10,000 per year are better off under the HST because of the rebate cheque they get.
There was one surprise. The HST is not revenue neutral. Well, maybe it wasn't that much of a surprise. For starters, whenever you hear the words revenue neutral you should worry. It's code for -- government never gets less of your money. Anyway, that's the intention. But we shouldn't be all that surprised when government revenue forecasts are wrong. After all, the carbon tax was supposed to be revenue neutral but turned out to be revenue negative. How did that happen? Because of the recession, people drove less than expected so government earned less in carbon taxes.
The old PST took about $5 billion out of your pocket each year. According to the report, under the HST, the provincial government brings in an extra $820 million per year. So obviously, the personal and business income tax cuts weren't big enough to offset the revenue brought in by the HST.
In the referendum on June 24, we can choose whether to keep the HST or extinguish the HST (get rid of it) and re-instate the old PST/GST system. What it doesn't mean is an end to the sales tax in B.C.
The report makes a couple of interesting points about this choice. Should people decide to go back to the old PST/GST system, the transition period could take up to two years - so if people think after the referendum the entire system will magically go back to what it was, they need to think again. The government would also have to give back whatever it already received of the $1.6 billion bribe from the federal government. More importantly, if we go back to the PST/GST system, we'd lose all the economic benefits and future economic growth a more efficient tax system would bring. The benefits to business, and therefore job growth and wealth creation in the province, would be lost.
What to do?
The government needs to lower the BC portion of the HST by two percentage points.
Why? Because the tax takes much more money out of our pockets than the old PST. One of the selling points for harmonization was the tax change would be revenue neutral. Let's make it so.
As the report notes, we are only stuck with the HST in its current form until July 1, 2012 unless we can get the Federal government to agree to a change. After that, we can change the rate once per year.
So the obvious strategy is for the government to reduce the rate by one percentage point on July 1, 2012, and another point on July 1, 2013.
The sad reality is, until people are willing to do more for themselves and stop asking the government to solve every problem under the sun, we will be forced to hand over more and more of our income to government. In the meantime, we should have a tax system that is the least destructive to personal initiative and the incentive to work save and invest. For the moment, the HST fits the bill.
The last thing we should do is go back to the PST.
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