The truth about HST: Most people's taxes will be lower
Many British Columbians have been led to believe that starting next week they will be paying significantly more in taxes as a result of the harmonized sales tax, the combining of the seven per cent provincial sales tax (PST) with the five per cent federal goods and services tax (GST).
And it's little wonder they may feel this way.
Consider that the words tax increase and HST have appeared together in more than 177 articles in B.C. newspapers over the past year. Several B.C. politicians have also tried to persuade British Columbians that the HST will be a massive tax increase.
For example, the BC NDP has called the HST a $2 billion tax hike, the B.C. Conservative party claims the HST will increase the tax burden on the average household and former B.C. premier Bill Vander Zalm has stated that, the average family in B.C. will pay in excess of $2,100 per year in more sales taxes with the HST.
These claims are not based on accurate measurements of the impact of harmonization and, in fact, are wrong.
In a study published Monday by the Fraser Institute, we provide a detailed empirical analysis of the impact of the HST on families at various income levels.
While it is true that most families will pay slightly more in sales taxes under the HST (an average increase of between $72 for low-income families to $403 for high-income families), the provincial government also introduced personal income tax reductions and a new credit to help buffer the move to the HST.
Specifically, the basic personal income tax exemption was increased to $11,000 in 2010, from $9,373 in 2009, which reduces the amount of tax individuals pay, and a new B.C. HST credit ($230 per family member) was introduced to help roughly 1.1 million low-and modest-income British Columbians.
Our findings show that for low-and middle-income families in B.C., the increased sales taxes paid under the HST will be more than offset by income tax reductions and the HST credit.
Families with incomes between $20,000 and $40,000 will see an average tax reduction of $411 in 2011, families with incomes between $40,000 and $60,000 will see their total tax bill decrease by an average of $159 and families with income between $60,000 and $80,000 will see an average tax reduction of $34.
While taxpayers, regardless of their level of income, will benefit from the increase in the basic personal income tax exemption, the B.C. HST credit is gradually reduced as family income increases.
Families in the upper-income groups will, therefore, experience a slight increase in taxes.
The total tax bill paid increases by an average of $65 for families with incomes between $80,000 and $100,000; by an average of $117 for families with income between $100,000 and $120,000; and by an average of $167 for families with income between $120,000 and $140,000.
These increases are, however, negligible, given the total taxes paid by families in these income groups. For example, the $167 average increase in the total tax bill for families with income between $120,000 and $140,000 represents an increase of just 0.3 per cent.
The bottom line is that British Columbia's taxes will become slightly more progressive as a result of the HST and offsetting tax reductions.
One would think that a more progressive tax system is something groups such as the B.C. Federation of Labour and the B.C. NDP would be cheering; however, both have come out against the HST.
Interestingly, their friends at the Canadian Centre for Policy Alternatives (CCPA) published a study that analyzed the impact of the HST in Ontario. Ontario also introduced offsetting personal income tax reductions and a new HST credit. The CCPA study found that, families in a wide range of incomes ($30,000 -- $90,000) should be better off on average by less than $80 or worse off by less than $65 per year ... which amounts to a wash, and that the average 'poor' family will be better off by $202 on a net basis.
Readers should ask themselves why the B.C. office of the CCPA did not undertake a similar detailed analysis of the HST in this province. All the CCPA offers is an unsubstantiated conclusion that, modest and middle incomes will be hit with hundreds of dollars a year in additional taxes without providing a detailed analysis that includes the impact of the HST credit and personal income tax reductions.
The rhetoric from opponents of the HST has distorted and misrepresented the impact of the tax reform. The truth is, low-and middle-income families will be better off under the HST because of concurrent decreases in provincial income taxes.
Whether it's the HST's impact on taxes, investment, or B.C.'s overall competitiveness, we urge British Columbians to seek out the facts before believing those that are more interested in politics and personal opportunity, than sound economic policy.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.