HST or VAT - Harmonized Sales Tax

People who hate the HST honk their car horns in Vancouver. HST requires some clarification.

The Harmonized Sales Tax (HST) is more commonly known globally as a “value-added tax” (VAT) and Canada is one of the last countries in the world to comprehensively adopt a VAT system.

Over 130 countries already have shifted to a VAT system including 29 of 30 OECD countries. Countries that have not embraced a VAT tax system have been shown to have higher prices (before VAT) at the domestic consumer level and higher prices at the export level. Okay, right there is where the HST must deliver for the consumer. If we have to pay it, we should see product prices drop.

The rest of this article with the exception of the GPS Application is our BC Government line. The premise is that with a value-added tax system (VAT) goods become less expensive to produce, and those savings are passed on to consumers. It appears already to have been verified by the experience of Canada’s three Atlantic Provinces which since adopting an HST, have witnessed consumer prices falling, according to a 2007 study by University of Toronto professor Michael Smart. In May the province of Ontario adopted HST and that was the necessary inducement to seriously consider this application in BC.

Economists, politicians and business people supportive of HST claim that in B.C. where the economy is driven by exports, we would create jobs and improve competitive pricing by adopting the same VAT system owned by other countries. Our government has needed to answer the question. Does British Columbia want to compete to attract investment and job-creation through lower costs and higher productivity? If YES is the response, then implementation of the HST is argued as the most direct and most effective way to do that.

That seems prudent. But I am a BC consumer and now I am a retired consumer on a fixed income and on behalf of all consumers I want to know whether I am going to carry the burden of this economy stimulus strategy. Will this initiative mean that I pay more taxes? The answer is an unequivocal YES. HST will apply to some goods and services where previously PST did not. The countering argument is that the long term benefit of lower prices will offset the tax increase. Moreover, for those working, higher wages are part of the promise outcomes. Initial thought is being given to a government approved BC HST credit of $230 to individuals with incomes up to $20,000 and to family members with incomes up to $25,000 as an offset to the impact of HST.

If true to its word, the BC Government will implement a point-of-sale rebate on numerous products including: gasoline or diesel; marine diesel or aviation fuel including biofuels; components used in a motor vehicle, boat or aircraft; books; children’s-sized clothing and footwear; children’s car seats and car booster seats; diapers and feminine hygiene products; all existing GST exemptions will continue to apply (i.e.; basic groceries). Further the promise has been made to offset the incremental cost of the HST on new homes by providing an HST rebate for new homes to a maximum rebate of $20,000. That means taxes remain essentially unchanged for new homes valued up to $400,000. HST only applies to new homes, not to previously-owned homes being re-sold.

GPS Application:

Christ’s opponents frequently sought to trap him in his words. If he would contradict the ruling Roman authority, they might condemn him. Matthew recounted how the Pharisees asked him a question about taxation. Was it right to pay taxes to Caesar was the question to which Jesus replied. Holding the Roman currency on which Caesar’s likeness was stamped and by which the tax would be paid he advised that they give to Caesar what belonged to him and give to god what belongs to him. In Matthew 22:15-22.

PS - (OECD stands for Organization for Economic Co-operation and Development and is comprised of 30 countries that accept the principles of representative democracy and free-market economy. Most OECD members are high-income economies with a high HDI {Human Development Index}and are regarded as developed countries.)

Noted BC Economist, Jock Finlayson and his colleague, Ken Peacock, wrote one of the best explanations of the benefits of HST recently.