Editor: No one likes to pay taxes. No one likes it either when a tax is imposed by questionable means. And no one likes it when previously untaxed goods are taxed.
Naturally, then, many are inclined to vote “yes” in the upcoming referendum and extinguish the HST.
This is a time, however, to vote with our minds and not our ill will towards taxes, the long-governing Liberals, or our past premier.
Seldom in the area of public policy does a truly smart tax come along. The HST is a good tax for several reasons.
First, it replaces a very inefficient tax: the PST. The PST was administered at each stage of production, and was a complicated tax that forced firms to devote days towards determining its applicability and application.
The PST, by taxing each stage of production, ended up “taxing taxes” with the result that many final products were more expensive than under the HST, which is administered only once.
True enough, the consumer didn’t see a line on the receipt that said “PST,” but those taxes were built into the final price. Studies of other jurisdictions (including other provinces) that have introduced the HST show that some prices rise a little, others fall, and the overall effect on price levels is minimal.
Second, the HST is an efficient tax. The efficiency comes from two sources. On the one hand, collection is now done by the federal government through the same bureaucracy that administers the GST. Across the country, this means an enormous reduction in the cost of raising tax revenues.
On the other hand, by taxing all goods and services, the HST does not distort relative prices in the economy. This is a difficult point to understand. Prices act as signals in a market to direct production and consumption. When only some goods are taxed, the wrong signals are sent, the wrong goods and services get produced, and overall economic welfare is reduced. The HST helps to maintain good signals.
Third, not only did the province receive $1.6 billion to introduce the tax (which may have to be paid back to the federal government with a successful “no” vote), the costs of switching back are now estimated at $300 million.
By rejecting the HST we reject an eventual lower total tax rate of 10 per cent, and we shoot ourselves in the foot twice by reintroducing a bad form of taxation.
The HST won’t hurt the poor (low income families receive an HST credit of $230 per year per person), and it won’t fall more on seniors. As the rest of the world moves towards value added taxes like the HST, we would be foolish to lag behind with a dinosaur tax system.
As an economist, I would advocate voting “no” in the coming referendum.
Douglas W. Allen,
Professor of Economics
Simon Fraser University.