SFU tax expert gives HST full marks
Jon Kesselman, 778.782.5035; kesselman@sfu.ca
Carol Thorbes, PAMR, 778.782.3035; cthorbes@sfu.ca
British Columbians will have good reason to celebrate when the much-maligned harmonized sales tax (HST) takes effect on Canada Day, according to a new paper authored by a Simon Fraser University tax policy expert.
In a column appearing in the latest issue of Policy Perspectives, a Business Council of British Columbia publication, Jon Kesselman says if you pass the HST through an economic prism it passes with flying colours.
In The Harmonized Sales Tax—Through an Economic Prism, Kesselman concludes the impending amalgamation of the provincial sales tax and the federal goods and services tax will improve tax simplicity, economic efficiency and equity.
“Some losers will arise in sectors that have enjoyed a tax-preferred status for many years, such as restaurants and home construction,” says Kesselman, a co-originator of the now popular Tax-Free Savings Account. “But overall British Columbians will gain through a more competitive business sector yielding, over time, more investment, increased employment, and better-paying jobs.”
Kesselman notes harmonization will save the B.C. government and ultimately taxpayers $80 million annually in public costs and partial compensation to businesses for collecting the provincial retail sales tax (RST).
The SFU Canada Research Chair in Public Finance adds: “Businesses and other B.C. entities now collecting the RST will save a further estimated $150 million per year in compliance costs…Business cost savings of $100 million per year will flow through as lower prices for consumers.”
Kesselman calls the RST “a dying breed” that survives in only a few jurisdictions around the world. He suggests that consumers would find the amalgamated provincial and federal sales taxes more palatable if the government adopted a tax-inclusive pricing system that doesn’t treat the HST as an add-on expense.
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Backgrounder: SFU tax experts gives HST full marks
- Jon Kesselman, an SFU tax policy expert in the graduate public policy program and a Canada Research Chair in Public Finance, uses three criteria for assessing the effectiveness of the impending HST: efficiency, equity and simplicity.
- Simplicity refers to the complexity and operational cost of a tax to both taxpayers and to the government. A good tax should have minimal complexity and cost.
- In terms of complexity, B.C.’s current arrangement for sales tax is among the worst in the world. No other country has both a national and a sub-national sales tax of such divergent kinds.
- Economic efficiency is a measure of how effectively an economy uses its resources to satisfy human needs. Kesselman says a harmonized sales tax system will encourage consumers to base their choices on the relative costs of various goods rather than the biases of variable effective tax rates. “As a result, the economy’s resources will be more efficiently allocated to meet consumer wants,” says Kesselman.
- A panel of non-partisan experts ranks provincial sales tax harmonization as foremost among potential policy initiatives to improve Canada’s long-term economic performance.
- The existing RST raises production costs to businesses and makes them less competitive domestically and internationally. An amalgamated provincial and federal sales tax will make B.C.’s business products more competitive in Canadian and foreign markets by removing tax-induced, extra costs to them. Kesselman predicts this will lead to greater sales, more employment and higher wages in B.C.
- The HST will promote equity by making various product prices align more closely with the costs of producing each of them. Refundable tax credits will insulate individuals and families at lower incomes from any potentially regressive impact of the HST’s implementation.
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Comments
Comment GuidelinesCan supporters of the HST guarantee that the costs of utilities, food and gas won't increase for the homeowner and consumer? Can they also guarantee that retailers will pass on the savings from the "simplified" tax system?
I will believe it when I see it!
I think your all out to lunch. If the HST was brought in to save costs and there was no addition of products or services to be taxed, then I might agree. However I have never seen a gov't yet that if they can come up with extra funds, uses these funds for the benefit of the people, what we get is new gov't bureaucracies which use up 95% of the savings and a very small amount gets to the people.It seems to me that a few years ago we were told that a sparation of GST and Provincial sales tax was good for us, now they are telling us that we should bring it all back together again - of course for our benefit. As for the 80 million savings in public costs -do you really believe that this would get back to the people???
Do you know what you are talking ?
I think that the author of this article is on drugs. There is nothing good about the HST, the retailer will NOT be passing on their savings on to the consumer. Talk about being out of touch with the world; you have these people write this article.
It seems the author is the spokeman for BC Finance minister. Where in the world increase in tax creates job? This HST will increase profit for businesses and tax revenue for the government. No wonder the government uses this so called "experts" in their propaganda machine!
"consumers would find the amalgamated provincial and federal sales taxes more palatable if the government adopted a tax-inclusive pricing system"
this is the only good idea Mr. Kesselman has presented, at least in this synopsis.
The "losers" as he states, namely restaurants and home constructions, were given tax exempt status for a reason: they are industries which create jobs at the low end of the totem pole and encourage spending and investment in the forms of tourism and property development.
The idea that businesses will pass on the $80 million in savings to consumers is akin to the idea that I would send Mr. Kesselman the money I saved on my TFSA.
Enough of the rhetoric and spin, this is just another cash grab for business in BC, it's time for Campbell and his goons to be locked up for all the lies and cheating.
Of course it looks good "when you pass it through and economic prism," because an economic prism assumes that the things that are true in economics are true in "the real world." It is just not sound economic theory.
For example, Kesselman says, "as a result [of the tax] the economy�s resources will be more efficiently allocated to meet consumer wants.� Setting aside the fact that this phrase is loaded with a number of theoretical concepts that the author of this article fails to unpack, what Kesselmen is stating here is a tired theory in liberal economics which assumes that the people charged with the efficient allocating of resources are isolated rational actors. This is simply not true in the real world no matter what discipline you look as. People behave in all kinds of irrational ways that are not predictable using the rudimentary assumptions of economic theory. I suppose Kesselman believes that resources will be allocated by an 'invisible hand.' Also, the notion that this tax is about meeting consumer wants is one of the oldest clich�s of business - "We are not about making money, we are about meeting consumers needs." This obviously contradicts the idea of a rational actor seeking to maximize their own self-interest in the market.
What Kesselman doesn't mention is the fact that many working class folks and students (yes, I will be so impertinent as to mention students) will NOT be getting pay raises that correspond to the rate of inflation or the new tac. So in many cases the introduction of a 12% tax in addition to stagnant wages will effectively amount to a significant pay cut for the working poor and students.
The tax is a bad policy and the fact that SFU media services publishes such articles without a critical eye to how this will affect students reflects very poorly on the fact that this is a university. Why is there no mention of the anti-HST campaign? SFU Public Affairs should be treating an issue like this more critically rather than just parroting the "experts."
It sounds like none of the above commenters bothered to actually read Dr. Kesselman's article. Typical.
Please read it before commenting. It may clear up some of your misconceptions about the tax and how you think it might affect you. It certainly did for me. http://www.bcbc.com/Documents/ppv17n2.pdf
Of course he thinks it's a great idea, he's trying to get a permanent job with the government. And what better way to get into their good books then to write about how this will help the province. How can anyone think it's a good idea to actually lose $112 million with HST that PST & GST would bring in?
My biggest complaint is that houses will be taxed at a time when buying a home is nearly unattainable to the average person. On a house worth half a million dollars, which isn't unusual in Vancouver, an individual will pay $60k in tax, plus whatever their mortgage interest rate is. This to me, is ridiculous.
Actually, buying pre-owned homes will not be subject to the HST. (http://hst.blog.gov.bc.ca/2010/03/27/rebates-exemptions/)
And people who buy new homes are eligible for rebates. Up to $550,000 or so, the cost of a new home will be less or equal using HST compared to GST+PST.
People are blowing the HST way out of proportion. Let's put it this way: if the HST really has a significant impact on consumer spending, then businesses will have to reduce prices by passing on the benefit they get from the tax. The alternative is that customers aren't hurt by the new tax in a significant way, in which case there's no problem anyways.
Since when have businesses ever passed savings down to the consumer? Economists study this stuff and in theory it should work but in reality, unless the business were all FORCED to pass along savings, they wont. More money to line the CEO's pockets and call it being competitive. Rich get richer.....
as they say enough is enough, pretty
soon I will be paying a shoe disposal
fee. here is a gov't that gives you a
penny, and takes back two, only they hide the tax as fees/levies etc. we need to bring back a gov't that works for the people,and does not rob them blind. it is obviously not going to happen. they are all crooks(gov't and business).it is clear we are not well represented here. the time for change is now. vote for the zalm(fantasy gardens fame),and let's get even. now if they reduced the pst and then merged it with the gst, then i would go for it. it is obvious what is happening here. the bc gov't will be collecting more revenues, and like most businesses will not pass the savings on to us. then they will say they are doing such a good job, and will give themselves another 30% wage increase. it is another scam and rip-off. don't get ripped off, unless of course you are the sucker that was born in the last minute.
I see a few people maligning Jon Kesselman as being a spokesperson for the government or other nonsense, and I'm compelled to say something about this.
Jon Kesselman doesn't need a permanent job with the government; he's a respected faculty member of SFU's Public Policy department, and as an academic, he has an impressive CV of published work. He's very analytical, he asks tough questions, and he's one of the leading experts in Canada on tax policy. He's not about to call an apple an orange just because someone wants to hear it.
I don't entirely agree with his assessment of the HST with regard to a few details, such as his assessment of equity, and I do tend to agree that economists forget that the real world is not fully populated by rational actors who always act to maximize their utility, but I respect his knowledge on the subject.
I'd also remind people that the HST has been in place in Eastern provinces for several years now, and people there tend to see the raucous in BC and Ontario as being a little drama-queenish.
I am now retired and I am fortunate enough to have a home in Arizona. When I return to Canada, I always have the feeling of being over taxed and that is certainly the case. In any event, my life experience tells me that when an expert or experts say a tax is going to be more efficient, simple, and equitable that means the government is going to be digging more deeply into my pocket in order to give my hard earned money to someone else; usually not deserving of it. The experts need to help the government reduce tax on all of us so that we have more disposable income. Would that not help out the economy? I have some ideas about where to make cuts in government spending if that is an issue.
Due to my position in the university, I must remain nameless. It is interesting that there is so much conversation about the HST - both in support and in opposition to. Why was there not this much attention to the "Levy" on parking?? To pay 7% PST, increased to 21% as part of a Translink proposal effective Jan 1, now that 21% is a tax/levy that is GST taxable!! How does that help faculty/staff/students at SFU and the general public throughout the province afford parking?? Yes - there is transit available, but this is not a viable solution for many people living in outlying areas...It seems this parking tax/levy was whisked through without much discussion... comments from a concerned community memeber
I provide a service for people so instead of 5% it's now 12% and they can't use my service as a write off so it's just a cost they have to absorb. So if my service costs 3000 then I now have to charge 360 on top. So at least two things happen: 1, It becomes a substantial amount of money on top and detrimental to my business, and 2, I have more people asking if they can pay cash thereby skirting the tax and increasing the underground economy. Europe has a terrible problem with their underground economy because of onerous tax. And regardless of the professor's eloquence and insight, the average person (and many on fixed income) used to pay 5% on services and now pay 12%. That's the plain fact of the matter for those who don't have an economics degree.
This is a respond to Dan's comments. You made a mistake in calculating the new tax; for 3000 the new tax will be 36.00 dollars not 360.00!!!!!!
Could Professor Kesselman please explain that to Board of Governors and the administration how the parking fee should be reduced and the wages should be increased.
Since the introduction of the exponential parking rate adjustment plan, the usage of the parking lots has reduced dramatically. The current rate is good enough to reduce the number of vehicles on campus. The cost recovery consideration may have no place in this plan otherwise ...
For those SFU staff live in outlying areas with family responsibilities to fulfill, this parking fee could take away a considerable portion from their paycheque.
I'd like to do something no one on this page has done, and specifically ask Prof. K: how does the HST benefit the 1.1 Million British Columbians making less than $20,000 per year, in a lot of cases, considerably less. The income tax cuts over the last number of years have not benefitted them, because they were already so far under the taxable income threshold. These people don't own homes, never will. They rent or worse. BC Finance Ministry numbers state that they expect the HST paid by landlords to have a "trickle-down" effect of increasing rents by 1% - 3%.
I'm afraid that too many people with their heads in the clouds can't see what "the real world" is for an awful lot of people. The fact is this new tax is good for a company that exports raw resources to foreign countries, and has owners and shareholders in foreign countries, and with CEOs making millions of dollars a year. That is just, plain tough to take for a pensioner living on $15,000 a year, and forced to pay more for vitamins and taxis. These people are more than just a number in an "average", and no one seems to be addressing that issue, no one!
@Picki - you're incorrect. Tax would be $360 on $3000...
D.J
no doult, people will pay more money. it is not right time now.