HST report makes tax a tougher sell

The Liberals’ hope of saving the HST took a big blow this week.

The government asked an impressive expert panel to do an independent report on the tax, hoping to build support.

Instead, the report trashed the government’s claims.

The panel did find the tax would help the economy and result in more jobs.

But it would also increase taxes for 85 per cent of families and reduce taxes for business. The costs to families were greater than the government had claimed. The economic benefits were much smaller. The government’s credibility on the HST was further shredded.

Three issues are likely to come into play in the referendum — the actual impact of the harmonized sales tax, the incompetence or dishonesty of the government in introducing it and the costs of getting rid of the HST.

They all matter. And the report offers the most credible assessment so far of all three.

The report found the harmonized sales tax will cost families and individuals an extra $1.33 billion a year, after accounting for the rebates and tax changes introduced to ease its impact.

That’s $295 for every person — adults and children — in the province.

In practice, the impact isn’t the same for everyone. Broadly, the more you spend the more you pay. Only the poorest people, with incomes under $10,000, will come out ahead thanks to tax rebates, the panel found.

Everyone else is paying more as a result of the HST. For a family with a household income of $70,000, the HST adds $527 a year in taxes on basic living expenses, the report says. That doesn’t include the HST on less frequent items, like new home purchases or big repairs.

That’s far more than the government claimed when it introduced the tax. In fact, its website set up to sell the tax continues to claim a family at that income level is only paying about $107 more in tax — one-fifth the amount the panel says is the real cost.

The panel found the government has provided — and continues to provide — wildly inflated estimates of the economic benefits.

The government has been claiming, based on a $12,000 study it commissioned after the tax was introduced, that the HST would result in 113,000 new jobs by 2020. (The government did no studies or analysis before introducing the tax.)

But the panel says benefits are hard to assess, but the most likely estimate is an extra $2.5 billion in economic activity and 24,400 more jobs by 2020 — less than one-quarter the job growth the government has claimed.

Any new jobs are welcome. But the report is projecting just 3,000 additional jobs a year; B.C. added three times that number last month, by way of perspective.

The panel also found the government has presented inaccurate information on two other important aspects. The tax is not revenue neutral — while individuals and families are paying $1.33 billion a year more, companies are paying $730 million less. That means the HST is, in fact, a tax increase. It also means claims that consumers would also see price decreases because of the reduced tax on businesses were exaggerated.

The report radically changes the cost-benefit assessment from the glowing picture presented by the government. The extra tax on consumers will add up to more than $10 billion by 2020. The economic benefits will be much smaller.

And it will fuel the anger of those determined to vote against the tax because of the way it was introduced. The clash between the panel’s assessment and the information provided by the government will be seen as evidence of incompetence or dishonesty.

The report did find that returning to the provincial sales tax would be costly and difficult. The government would lose the extra tax revenue and likely have to repay the $1.6 billion Ottawa provided as an inducement to harmonize the provincial sales tax and the GST. But its overall findings are bad news for the government.

Footnote: The government appears to be considering changes to the HST to make it more palatable, including promises of a lower rate. The problem is that it has insisted in the past that changes — such as exemptions for restaurant meals or for bicycles — are impossible under the agreement with the federal government.