Rate cuts might sweeten HST deal enough to swallow

What is the spoonful of sugar that will help the Harmonized Sale Tax medicine go down? That’s effectively the question Finance Minister Kevin Falcon is posing to British Columbians in the HST consultation announced last week.

It’s a question to consider carefully, because rejecting the HST in the June referendum would have serious consequences. Ottawa would want its $1.6 billion back, delaying B.C.’s ability to balance its budget and reduce spending on other priorities.

There is the headache and cost of going back to the GST/ PST system. It would cost $30 million a year to reinstate the infrastructure to collect a tax that one senior bureaucrat described as a “broken” and “beyond repair.” Apparently, administering the tax was about as much fun as complying with it.

Small-business owners saddled with the task of figuring out the complicated PST rules often called our office in fits of frustration. You needed a PhD in deciphering confusing language to figure out many of the rules, and 59 per cent said it was their top provincial regulatory headache.

There is also the not-so trivial matter of what an HST flip-flop would mean to B.C.’s investment climate. Ontario is sticking with the HST. Everything else being equal, a manufacturer looking to set up in B.C. with PST/GST or Ontario with HST would choose Ontario.

None of this is to suggest that the HST’s critics don’t have some excellent points. It’s inexcusable that the government foisted this tax change on British Columbians with zero consultation.

It’s also true that because the PST had a lot of exemptions that the HST doesn’t, prices on some goods and services such as restaurant meals and haircuts have gone up. Instead of paying only the GST of five per cent on such items, consumers now pay a combined rate of 12 per cent.

This has hurt some businesses and consumers. It should be noted, however, that rebates make many low income families better off under the HST system.

How can the government make the HST a win for businesses and consumers that oppose it? Cut the rate by a point now and a point once the economy is in better shape. This would take the HST down from 12 per cent to 10 per cent, which is plenty high enough for a consumption tax.

A recent Canadian Federation of Independent Business survey shows this creates majority support for the HST even among businesses most likely to be opposed. It would also be a real win for consumers, especially lower and middle income families hit disproportionately hard by consumption taxes.

That’s a spoonful of sugar that would help the medicine go down in the most delightful way.

* Editorial by Laura Jones, Vice President, Western Canada with the Canadian Federation of Independent Business.