Friday, July 2, 2010

Sacha’s spin-free discussion on HST

There has been so much spin about the HST. My post comes from both an accounting background and a physics background (two professions that might seem quite distant have a lot in common). I am also very well versed with income tax legislation and government policy concerning finance in general.

Both sides of the HST debate have spun the facts so hard that it is difficult to get legitimate analysis on it. The following is an attempt at clarifying the HST, as I see it.

Q: Who wins with the HST?
A: Businesses that have high amounts of inputs that they previously would have paid PST for – they can claim these as input credits with HST. Generally, this applies for businesses that deal with products as opposed to services. So industrial companies, or manufacturing companies would be a significant winner with the HST.

Q: Who loses with the HST?
A: On the business side, any businesses that have their costs dominated by labour and/or non-PSTable items. Examples include restaurants and consultants. Individually, almost everybody is going to end up paying more in consumption taxes than before the HST implementation. It is impossible to conceive of a scenario where ordinary middle-aged working individuals will pay less tax with the HST, even when factoring in the increase in the basic exemption (the amount of income you can earn without paying provincial income taxes).

Q: Will prices drop as a result of HST?
A: Only in those industries that have significant amounts of PST on their business inputs. It is also unlikely these price increases will be seen immediately – it will be subtle and impossible to measure, although in theory competitive industries should realize some price decreases in the medium and long term had HST not been implemented. The real strategic issue is that the HST benefits manufacturing, and manufacturing has been consistently been outsourced across the Pacific (to countries like China, India, Thailand, etc.) – HST will clearly enable us to be more competitive with manufacturing, but since labour costs are also a significant cost input, I haven’t seen any clear analysis to establish that we will be able to draw in more manufacturing capital. A lot of the theory behind the positive aspects of HST depends on capital asset purchases being a detriment to manufacturing, as opposed to high labour costs (which the HST does not address at all).

Q: Will HST increase my wages?
A: Very, very, very indirectly. The theory is that with increased investment, you will have demand for labour, and with labour demand, this will result in increased expectations for wages. The answer to this question is much closer to “no” than it is to “yes” and to claim that HST will result in increased wages is simply not true – doubly so if you work in a service industry. (for more information click here).


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I have been a resident of Coldstream since 1976. I have had 15 years of experience on Council, 3 years as Mayor. As a current Councillor I am working to achieve fair water and sewer rates and to ensure that taxpayers get fair treatment. The current direction regarding water supply is unsustainable and I am doing all I can to get the most cost effective water supply possible.