It worries us when politicians think they know all about economics. Even more worrisome, is when they actively go out and fight for what they “believe in”.
An interestingly incredible night last week sparked my curiosity for a certain former B.C premier, Mister Bill Vander Zalm. I just didn’t expect to be so disappointed in his views. For one, he is a strong advocate against the harmonized sales tax.
From an article in the Globe and Mail, he is quoted as saying:
““We have to put up the fight,” he said. “We are going to win it, there is no doubt about it but even if we don't, the fact that we are showing the government that people are concerned, that in itself carries a very important message.”
For the full article, click here.
First a little background on income vs consumption taxes.
The benefit of consumption taxes over income taxes is that they do not distort the intertemporal allocation of consumption. Taxes are only assessed on any income that is consumed (spent on goods, services, etc.) while not taxing savings. This encourages people to save more, increasing investments and economic growth.
An income tax, however, creates a distortion between the value of a person’s labour and what they actually receive, leading to a disincentive to work. In other words, an income tax produce fewer saving (because capital is taxed), reduces investment, discourages innovation, and eventually results in a lower standard of living when compared to a pure consumption tax.
So with the Canadian federal debt at somewhere along the lines of $526 000 000 000, do we cut spending or raise taxes? No one wants to cut spending so we are left with tax increases. The HST is collected by the federal government, not the provincial one and it would make sense that it is then efficient. The input tax credit on the HST causes input costs for firms to go down and they no longer pay PST on inputs. A good example would be glasses, tables etc in restaurants. In a recession this would stimulate investment.
We do want to note that yes, some prices will increase, which is required. After all, we don’t wangt to be Greece.
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I dont think the controversy with the HST is about whether consumption taxation is better or worse-- or more efficient, prudent, etc-- than income taxation. The controversy is about the loss of exemptions that will most effect low income people to purchase necessity items. Big ticket items are unchanged by this harmonization.
ReplyDeleteThe HST was proposed to the provinces of BC and ON by the Federal Conservative Govt; the same govt who reduced the GST from 7 to 6 then 5%, claiming it will increase personal wealth, and be a better alternative to lowering income taxes --since it would also benefit those with little income.
The source of the real outrage by the people of BC is the means this tax proposal was introduced/imposed on citizens, by recently re-elected provincial govt that campaigned on no harmonization. It represents an act of bad faith.
Had harmonization been engineered to retain exemptions on items that apply to goods for children and their education, recreation; energy efficient building materials; necessity items that seniors on fixed income buy,etc. The NoHST campaign would have no weight, and probably never happened.
We dont want to be Greece?... This argument hasnt been fully explained in this article. Just a sensational title. There is a big difference between Greece and BC, c'mon now... we havent yet deforested almost all of our landmass yet, just as one example.
-- Marilyn Nemeth
The reference to Greece has to do with the fact that people in this province want subsidies for childcare, education, energy saving devices and social welfare for all. Someone has to pay for this through taxation. Consumption taxes, such as the HST are the most efficient way to collect taxes. The conversion from PST to HST reduces business costs because of the reduction in filings and accounting systems. Either a good is taxed, or it is not.
ReplyDeleteRead an interesting commentary by a constitutional lawyer that suggested the Anti-HST campaign is doomed to failure because the signature campaign is essentially asking the provincial legislature to overturn federal taxation. The provincial government can reinstitute the PST but they cannot remove the HST, only the federal government can do that.
Winning the antiHST campaign is about actively expressing disapproval, an attempt to pressure some Liberal MLAs into possibly voting against their party to save their own seat/cushy job (this is what is stated in the NP article link). In case of not winning, the message has been made-- and the electorate becomes engaged in a democratic process. Compared to Greece, where the reaction to austerity measures was taking to the streets in riot (example two).
ReplyDeleteThe problem with comparing Greece to BC (if it chose not to implement HST) is comparing a Canadian Province to a Southern European Country; the two comparisons have vastly different geographies, industries, societies. Your title and article suggest without HST we will be soon needing a bailout. Is this not fear-mongering?
It would be more apt to compare BC to Quebec --if your reasoning is of childcare, education subsity, social welfare, etc. And should be more aptly entitled 'We Dont Want to be a Have-not Province'--since that's what you seem to be really getting at.