Campbell’s #HST Illusion by: David D. Schreck
Mar 10, 2010 Guest Posts
On July 1, 2009, France reduced its value added tax (VAT – the equivalent of our GST or HST) on restaurant meals from 18.5% to 5.5%. They did that because they accepted the evidence that the tax on restaurant meals kills jobs; they expect 40,000 jobs to be created as a result of cutting the tax. Why does Premier Campbell think that economics works differently in British Columbia? If you can answer that question you might also know why he would say one thing before an election and do the opposite after the election.
Finance Minister Colin Hansen was almost laughed out of the room when he told reporters that money from the HST would be earmarked for health care. On March 6th, Vancouver Sun columnist Vaughn Palmer wrote: “By the end of this week, even Hansen was admitting that the move to link the HST to health care was mainly an exercise in public relations.”
Not to be deterred by its failed public relations exercise, today the Campbell government released a propaganda sheet that it tried to spin as an economic study. The 13 page paper by Jack Mintz of the University of Calgary’s School of Public Policy claims that over ten years the HST “is expected to increase the province’s capital stock by more than $14.4 billion and add 141,000 new jobs.” The words “is expected to” are significant because Mintz’s claims are nothing but wishful thinking, not backed up by any testable hypotheses – no model, no estimation techniques, no standard errors of the estimates.
Mintz argued that: “When maximizing the value of their shareholders’ equity, businesses will invest in capital until the marginal return on it is equal to its cost.” As the recent financial mess around the world demonstrated, it is arguable whether large corporations maximize shareholders’ equity, but that is not the biggest hole in the Mintz paper. He maintained that by lowering the marginal effective tax rate (METR) on capital, more projects will be attractive for business investments. Despite a few footnotes about assumed capital-labour substitution and the risk of changing federal policy, there is nothing in his paper that spells out how he arrived at estimates of precisely $14.4 billion in investment over 10 years and 141,000 new jobs.
Mintz failed to put his unsubstantiated estimates in the context of BC’s traditional investment and job growth so readers could tell whether his numbers are significant and thereby judge whether they justify shifting $2 billion a year from businesses to consumers. Note that in the absence of inflation that would be a shift of $20 billion over 10 years to justify investment of $14.4 billion; if Mintz is right, consumers could do the investment themselves and be almost $6 billion ahead. Back to the context for comparison: at 2% annual employment growth, BC will add over 390,000 in the next ten years. Mintz is claiming that the HST will boost that by 36%. That strains credibility when we know that jobs will be lost in the hospitality sector because of the tax. As for investment, over the 10 year period ending in 2008, businesses invested $97 billion in machinery and equipment in BC and $82 billion in non-residential structures, so Mintz is claiming that if the next 10 years are the same, business investment would increase by 8%. For those who are here 10 years from now, it might be challenging to separate the effect of lowering the METR from the effects of changing interest rates and commodity prices.
Before committing to the HST, BC had the opportunity to study the consequences of eliminating the provincial sales tax on production machinery and equipment. Instead of commissioning Mintz to produce his paper, the Campbell government might have attempted to analyze its own tax experiment. The Campbell government eliminated the PST on “production machinery and equipment” in 2001. I submitted a freedom of information request asking how much tax revenue was foregone for each year since that exemption and for any documents that discuss estimates of changes in investment as a result of the exemption. On October 30, 2009 I received an answer saying: “Pleased be advised that the Ministry has no records responsive to your request. Budget 2001 estimated the cost of the exemption when first introduced but the cost has not been estimated since because it is not part of the Tax Expenditure Survey.” Before embarking on one of the largest tax shifts in BC history, one might think that the government would have analyzed whether its initial experiment in stimulating investment worked or not, instead they hired Mintz to write a propaganda sheet.
It is probably true that lower taxes on investment means more investment, just as it is true that higher prices on restaurant meals means fewer meals. The trick is in determining how much. There appears to be good evidence that restaurant meals purchased decline by 1% for every 1% increase in price. There appears to be little or no evidence on how business investment responds to changes in taxation, but most economists would acknowledge that interest rates and commodity prices are likely to be far more important than marginal tax changes.
There doesn’t appear to be any provincial public opinion polling in the works that will allow us to measure whether the Liberals enjoyed a post-Olympic bounce or whether the public is buying their political spins. It may be the fall before the spin is tested, after folks see what the HST does to the price of lunch and a cup of coffee.
Tags: business investments, capital stock, economic study, effective tax rate, election finance, estimation techniques, finance minister, financial mess, HST, jack mintz, large corporations, new jobs, restaurant meals, shareholders equity, sun columnist, testable hypotheses, university of calgary, vancouver sun, wishful thinking
Finance Minister Colin Hansen insists that it’s not about misleading the public
Mar 3, 2010 Guest Posts
Adam Stirling Comment – CFAX 1070 Radio Victoria, Mar 3, 2010
I respectfully disagree…
Minister Hansen announced a new government bid yesterday to try to link the wildly unpopular HST to BC’s health care system
Minister Hansen pledged that every dollar raised from the harmonized sales tax will go towards BC’s cash strapped health care system.
What the minister is reluctant to admit is that every penny that goes into health care from the HST will just be clawed back from some other revenue source. To be clear it will make absolutely no difference. For example if an extra million dollars goes into BC’s health budget by way of the HST, that million will be clawed back from other sources of revenue, such as income tax.
It’s easy to see why the government is doing this however: they are scared. They are scared that the 85 percent of British Columbians that polls tell us are against the tax will rise up and defeat it in the upcoming counter petition and possible referendum.
I asked Minister Hansen on my show yesterday if his government has contingency plans in place should this petition actually succeed and force a referendum which nullifies the HST.
Tags: 1070 radio, bc economy, bc government, British Columbia, british columbians, contingency plans, hansen, harmonized sales tax, health budget, health care system, HST, human shields, income tax, million dollars, petition, public policy, referendum, revenue source, stirling, straight answer
Common Ground Magazine Cover
Feb 6, 2010 Guest Posts
As we get closer to our 3 month long Signature Collection Campaign, I thought I would share this Great magazine cover by Common Ground Magazine (with permission of course). I love the caption: OVERTAXAR from the director of “TITANIC DEBT”
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Tags: bc liberals, collection campaign, common ground magazine, Fight HST, FightHST, gordon campbell, HeiST, Liberals, overtaxar, signature collection, titanic debt
HST INPUT TAX CREDIT SUSPENSIONS likely for small business
Nov 11, 2009 Guest Posts
The BC Liberal government has made a big deal about how this HST is going to be good for business and how BC businesses will be able to recover “INPUT TAX CREDITS” paid out on a number of different items.
What Minister Colin Hansen and Premier Gordon Campbell did not tell you was that if Hansen figures things are sticky enough, he can suspend part or ALL of those “INPUT TAX CREDITS”. And not just for a short time either. 5 YEARS of full suspension, plus 3 years more to phase them back in.
Wait just a minute guys? What the heck did you need that for? If Hansen was not contemplating using this provision, why is it there?
It is very clear that the Liberals know full well what is coming after the 2010 OWE-lympics are done. And they have decided that your slurpee is too much of a luxury for them to miss the tax on.
Every small BC business is going to take a beating on the HST. Either directly, or indirectly because even if you can believe that insane $1.9 BILLION projection of increased tax burden on BC consumers, that works out to some $460 increased tax by every man, woman and child in BC. And those numbers are the ones offered up by the same fiscal sharpies that ran the last election of an approximate $460 million deficit projection only to have it revealed later it was in the multiple BILLIONS!!
No small business can be expected to see $2500 per family removed in terms of buying power. Because while families will be paying more for goods because of this HST, incomes are NOT going up to keep pace. So small BC businesses are in grave danger of being wiped out over this.
Mike Summers
Northern organizer, Fight HST
Tags: bc business, bc businesses, bc consumers, full suspension, grave danger, hansen, HST, incomes, input tax, last election, liberal government, man, mike summers, Owe-lympics, premier gordon campbell, sharpies, slurpee, Tax Burden, woman and child
HST – Son of GST by:Peter Ewart
Sep 10, 2009 Guest Posts
Like one of those B movie sequels, such as the Bride of Dracula or Son of Frankenstein, the infamous Goods & Services Tax (GST) – first introduced in 1991 by the Brian Mulroney government – keeps rearing its ugly head.
Its most recent reincarnation is the BC government’s Harmonized Sales Tax (HST) which is proposed to be introduced in the province in 2010. How are the two taxes related? Well, both are called “value-added” taxes (a euphemism if there ever was one).
But, historically speaking, much more connects these taxes than that. Indeed, when the GST was imposed in 1991, the Mulroney government also had the intention that the provincial sales taxes would be combined or “harmonized” with the GST. At least that was the idea. Thus, the first part of the GST “plan” was to impose the tax federally. The second part was to install it provincially with an HST. Thus the HST is actually the “son” of the GST.
What happened? If there ever was a cautionary tale for politicians, the GST is it. The Brian Mulroney government, puffed up with arrogance, declared that the GST would be imposed on Canada come hell or high water. Yes, it was imposed. But there was a cost. Two MPs in Mulroney’s Progressive Conservative government quit, while many members of the Party resigned. One of the biggest beneficiaries was the rising Reform Party, which was strongly opposed to the GST.
A great controversy shook the country and many people were outraged with the high-handed behaviour of the government. In the 1994 election, the Progressive Conservative government was slaughtered, going from a majority of seats in Parliament to a miserable two seats, one of the biggest electoral defeats in Canadian history.
A large part of this catastrophic defeat was voter opposition to the GST. And it is not hard to see why. Each time, a voter would pay for a good or service, he or she would be reminded of the Mulroney government’s role in imposing this tax. It was as if Brian Mulroney’s smiling face was stamped on every bill or receipt.
At that time, seeing the widespread opposition to the GST, the provincial governments backed off from bringing in a “Harmonized Sales Tax,” perhaps thinking they would do so after a few years, once the controversy had died down.
Since then, provincial governments in Quebec and the Maritime provinces have brought in their versions of the HST. But Western Canada and Ontario have continued to shy away. Until now.
Both British Columbia and Ontario have announced that they will be bringing in the HST next year. The most highhanded in this regard has been the BC government. During the provincial election in May, it denied that it was even considering adoption of the HST, only to turn around two months later and announce that the HST was on the agenda.
Some people argue that all of this will be forgotten in four years and that it will have little effect on the next election. I am not so sure.
For one thing, by bringing in this highly unpopular tax, Premier Campbell is fracturing the “grand coalition” that is necessary to ensure a Liberal victory in the next provincial election. Indeed, it was the opposition of the provincial Reform Party and other political forces that cost Campbell the provincial election in 1996.
For another thing, the next provincial election is scheduled for 2013. In the years leading up to it, people will be forking out extra money for the HST on home renovations, real estate fees, haircuts, and a blizzard of other goods and services.
Indeed, on election day itself, some voters may drop by a restaurant for a coffee and doughnut before casting their ballot. When they are at the counter reaching in their pocket for coins to pay the extra 7% for the HST, guess whose mug shot will be stamped on the bill?
Peter Ewart is a columnist and writer based in Prince George, British Columbia. He can be reached at: peter.ewart@shaw.ca
“Article is from Opinion250 at www.opinion250.com“
Tags: Campbell, Cash Grab, Fight HST, GST, HST, Liberals, Peter Ewart, Tax Burden, Tax grab
