VANCOUVER, BC—The calculations of the effect of the HST on BC families commissioned by Victoria’s Times Colonist newspaper with Statistics Canada and published Tuesday contains a significant error that inflates the amount of tax paid by British Columbians.
“The Times Colonist analysis, which is based on Statistics Canada modelling, is flat out wrong. The assumptions the newspaper details in a story accompanying the data do not square with the results,” said Niels Veldhuis, Fraser Institute senior economist.
According to the Times Colonist explanation of how its results were reached, the Statistics Canada model assumes that “all taxes that business pay are pushed through to the final consumer.” But the data table running alongside the Time Colonist story shows British Columbians paying $1.5 billion more in sales tax, a number more than three times the increase in the amount of sales tax the BC government expects to collect under the HST.
According to the most recent BC provincial budget, the government will collect approximately $410 million more in sales taxes under the HST, which are being offset with personal income tax reductions.
“While the Times Colonist assumption that businesses will pass on savings to consumers is accurate, in total British Columbians would pay $410 million more in sales tax, not $1.5 billion. The Times Colonist and Statistics Canada fail to follow the assumptions they state at the outset when they make their calculations, and this error results in a grossly inflated number that they claim represents the impact of the HST on British Columbians,” Veldhuis said.
Evidence from Newfoundland, New Brunswick, and Nova Scotia, which harmonized the GST with their provincial sales taxes in 1997, and the move from the federal Manufacturers Sales Tax (which taxed business inputs) to the GST in 1991, show that strong competitive pressures among businesses resulted in cost savings being passed on to consumers through lower prices.
In the three Atlantic provinces (Newfoundland, New Brunswick, and Nova Scotia) businesses passed on between 60 and 100 per cent of savings in the first year after harmonization. Additionally, when the federal Manufacturers’ Sales Tax, a tax on business inputs much like the current PST, was replaced with the GST in 1991, most of the savings were also passed along to consumers.
Estimates for BC indicated that approximately 80 per cent of total cost savings will be passed along in the first year of HST implementation, increasing thereafter to 100 per cent.
“While opponents of harmonization claim that the elimination of sales taxes on business inputs and the expansion of the sales tax base will shift the tax burden from business to individuals, they ignore the fact that the ultimate burden of all taxes already falls on people in the form of higher prices, lower wages, or reduced rates of return on their retirement plans,” Veldhuis said.
A study released by the Fraser Institute on June 21, The Impact of the HST on British Columbian Families
, calculated the average BC family will pay $249 more in sales tax in 2011 under the HST. At the same time, personal income tax reductions equate to a reduction of $205 for the average family.
All told, the total tax bill for the average British Columbian family will increase by $44 under the HST.
“Our study explains why reductions in income taxes must be considered alongside the increase in sales taxes in order to get an accurate picture of the impact of the HST on British Columbians. Overall, the income tax reductions significantly mitigate the effect of the HST, resulting in a relatively minor increase in the total tax bill for the average BC family,” Veldhuis said.
Given that the personal income tax reductions were implemented primarily to assist low and moderate income families, families in the lowest income groups will experience the largest dollar and percentage decrease in income taxes.
The Fraser Institute study also concluded that families with incomes between $20,000 and $40,000 in 2011 will see an average tax reduction of $411; families with incomes between $40,000 and $60,000 will see their total tax bill decrease by an average of $159; while families with income between $60,000 and $80,000 will see an average tax reduction of $34.