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HST has been vastly oversold in B.C., report finds

Fight HST pin.

Lyle Stafford for the Globe and Mail/lyle stafford The Globe and Mail

A government-appointed panel has undermined several of the government's own selling points in favour of the HST ahead of the coming provincewide mail-in referendum on the controversial consumer tax.

The four-member panel found the HST will bring no more than a modest benefit to the B.C. economy, create nowhere near the 113,000 new jobs hoped for when the tax came into effect last year, and is far from revenue neutral.

In a finely balanced study released Wednesday, the panel said the 12-per-cent tax is already adding hundreds of millions of extra dollars to the treasury, contrary to the government's initial prediction that tax breaks and rebates would balance off new tax revenue from the HST.

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"That hasn't happened," the panel said. "The HST is raising more revenue … than was predicted.

"With each passing year, the HST will continue raising more revenue … because it taxes a broader base of goods and services."

As a result, the panel warned that killing the HST and returning to separate provincial and federal sales taxes would cost the government more than half a billion dollars in the first year.

That will imperil public services and delay a balanced budget by at least a year, the panel said.

HST proponents, including the Liberal government, argue that reduced taxes paid by businesses under the new tax system will generate economic growth and create jobs.

The panel agreed, but termed the extent of economic improvement expected by 2020 under the HST "important - albeit modest," with a higher growth rate of 1.1 per cent.

The number of new, "better-paying jobs" was pegged at 24,400, a far cry from the 113,000 added jobs predicted in an earlier, oft-quoted government report by Calgary economist Jack Mintz.

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Finance Minister Kevin Falcon hailed the report, despite the discrepancy.

"Frankly, thousands of new jobs in British Columbia is not a bad thing," he told reporters in Victoria. "What this report tells us is that job creation may be as low as 24,000, or it could be as high as 113,000. … I think the public, quite rightly, looks with some degree of skepticism whenever job predictions are made."

The panel estimated that HST is costing B.C. families an average of $350 more a year.

However, their study added that low-income families with annual earnings below $10,000 - about 15 per cent of the B.C. total - are actually better off under the HST because of government rebates they receive.

The panel is comprised of B.C.'s former auditor-general George Morfitt, economist John Richards, former Alberta treasurer Jim Dinning and Tracy Redies, CEO of a large credit union.

Bill Tieleman, a leader in the fight to kill the HST, said their findings are devastating for the government.

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"It clearly shows the average family is going to spend hundreds of dollars extra because of HST," Mr. Tieleman said. "It shows the job creation the government suggested would happen isn't happening. And it shows the government is making oodles and oodles of money - more than $800-million a year, when they said it would be revenue neutral. This is excellent news for us."

In its summary, the panel agreed that returning to the old system of separate provincial and federal sales taxes will put more money in consumers' pockets.

But there will be longer-term consequences, the panel said, including payback of the $1.6-billion B.C. received from Ottawa in return for switching to the HST "and a $531-million hole in the provincial budget."

And the "gradual future economic benefits expected with the HST" will not materialize, the panel pointed out. "It's not a simple choice."

Mr. Falcon said the report was "exactly what [the province]was looking for … to illustrate the pros and cons [of the HST]"

He said the government is continuing to listen to the public and weighing options to improve the tax and reduce the burden on consumers.

However, he was non-committal when asked if the large amount of extra revenue the current HST was generating might lead to an actual cut in the tax rate.

"I don't know what the answer is yet. We recognize there is an additional impact [on many families]" Mr. Falcon said.

"[But]that additional revenue is going towards important public services like health care and education, and getting us back to a balanced budget. There are real pressures on the government."

The mail-in referendum begins in late June and concludes a month later.

With a report from Justine Hunter in Victoria

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