It's forced the resignation of one high-profile provincial cabinet minister and spurred a provincewide voter revolt. The harmonized sales tax, which combines the five-per-cent federal goods and services tax with the seven-per-cent provincial sales tax, begins July 1. Over the next 10 days, the Times Colonist will take a detailed look at how the HST will affect Victoria individuals and families.
The average B.C. household could take a hit of $521 to its bottom line next year as a result of the harmonized sales tax, according to a model prepared for the Times Colonist by Statistics Canada.
The change could range anywhere from $78 for households with single parents and one child to $801 for a married couple with no children, the figures show.
"There are certainly individuals and households that will feel the impact of this tax," said Dr. Herbert Schuetze, economics professor at the University of Victoria.
"For example, if you are unattached and 65 years or older, we're talking about $262 a year. That's a considerable amount of money for some people."
At the request of the Times Colonist, Statistics Canada analyzed 15 different household types and 15 different income classifications using its social policy simulation database and model.
The model is used by the federal government and other organizations to analyze financial interactions between government and individuals.
For the Times Colonist's HST analysis, it synthesized four databases -- the Survey of Household Spending, Survey of Labour and Income Dynamics, EI claimant history and personal income tax returns -- to establish a sample of B.C. households.
The weighted total of households in the sample was 1.935 million.
Statistics Canada determined what that sample spent on various items, its household income and characteristics, and then followed the rules of the income tax system and applied all of the rebates, tax credits and rules surrounding the HST and GST to the sample to determine the impact of the tax.
The figures suggest the more money households bring in, the more they will pay.
For example, a household with an annual income of $40,000 to $50,000 will pay $253 more because of the HST, while households in the $80,000 to $90,000 range will pay $1,128 more annually.
"It looks like families get hit pretty hard," Schuetze said.
Statistics Canada's model incorporated a number of measures designed to offset the effects of the tax.
Those include a B.C. HST credit of up to $230 annually to low-income households, an increase to the personal tax credit, a rebate for home energy and point-of-sale rebates for a number of other items.
Yet each of the 30 household types for which Statistics Canada provided
figures shows some negative impact as a result of the HST.
That does not jibe with predictions in the March provincial budget, although the parameters for the government's analysis were not the same as those used by Statistics Canada.
Neither does it match a Fraser Institute report released Monday.
The budget documents showed a family of four with $30,000 income coming out ahead $535 annually, while a family of four with an income of $60,000 would spend an extra $107 a year and a family of four with an income of $90,000 would spend $178 more.
According to the province, single individuals with an income of $80,000 faced a $314 increase in spending, while single people with $25,000 incomes would end up $2 ahead and a senior couple with an income of $30,000 up $1 annually.
The Fraser Institute delivered a different perspective on the impact of the HST, saying the total tax bill will decrease for low-and middle-income B.C. families. That's because even though these families will pay slightly more in sales tax, those increases will be more than made up for by income tax reductions, as well as the HST credit, said Niels Veldhuis, senior economist for the Fraser Institute.
The Fraser Institute used its Canadian tax simulator, which is based on Statistic Canada's social policy simulation database and model, and factored in provincial income tax changes announced at the same time as the HST, he said.
Under the Fraser Institute's model, families with incomes of between $20,000 and $40,000 in 2011 can expect an average tax decrease of $411. The Fraser Institute used different criteria than the Times Colonist to describe a family, stating it was made up of two or more persons.
Families with incomes of between $40,000 and $60,000 will see their taxes reduced by an average of $159, the institute said. The tax break would shrink further, to an average $34 for families with an income of between $60,000 and $80,000, it said.
The model Statistics Canada used for the Times Colonist analysis did not take into account the effect of the HST on housing, which is significant.
Previously, new homes were exempt from provincial sales tax. Starting July 1, they will be subject to the HST, although purchasers will be eligible for a rebate on the provincial portion of the tax up to a maximum of $26,250.
The model also assumed all costs to business, as well as savings a business might realize as a result of the HST, would be passed on to consumers.
But perhaps the largest unknown is behavioural change caused by the new tax.
Schuetze said that is a significant caveat.
"It may be an overestimation of the impact in part because there's no change in consumption assumed here," he said. The Statistics Canada model assumed households would spend as much as they did pre-HST, something that is unlikely to happen.
Indeed, dozens of Victoria residents interviewed for this series said they would be cutting back on unnecessary expenditures after July 1.
"I may have to make some cutbacks, like eating out, and I will have to think more before I spend," said Jeff McKay, a 33-year-old executive with Oak Bay Marine Group.
"I will have to be more careful," said Caitlin Flanders, 24, who works for the Queen's Printer.
"Going out for coffee or lunches, which I don't do that much any way, I won't do as often because of that tax."
aduffy@tc.canwest.com
FOR SOME SECTORS, THE HST IS GOOD TAX POLICY, ECONOMISTS SUGGEST
Like it or not, the new 12-per-cent harmonized sales tax that comes into effect July 1 is good tax policy.
That's the prevailing sentiment from the province, economists and B.C.'s largest industries on the eve of the implementation of the tax, which combines the five-percent federal goods and services tax with the seven-percent provincial sales tax.
More than 700,000 British Columbians have signed a petition to kill the HST, which they say is a tax shift from business to the consumer and will have a significant impact on household bottom lines.
But support for the tax is solid in many sectors.
"Based on experiences in other jurisdictions, this will be very positive," said John Winter, president of the B.C. Chamber of Commerce.
"The bottom line is the job creation that goes with this would suggest it's worth the pain in the end. The net effect of it all will remove a lot of the costs from business in B.C. and enable them to compete."
Victoria has said since it introduced the idea of an HST last summer that the tax will improve the province's competitiveness and lead to more jobs, higher wages, streamlined business processes and increased investment.
The investment is expected to come as a result of the HST's reduction of the marginal effective tax rate on new business investment.
Currently, new investment on capital is taxed at 27 per cent. That will change to 16 per cent under the HST.
The province and economists say the HST will result in the removal of more than $2 billion in costs across the province because the provincial sales tax companies now pay on their business inputs will be removed.
"I still very much feel that this tax change is the right thing to do and B.C. will be much stronger in the future because of it," said Finance Minister Colin Hansen, who says he is seeing some positive results already. -- Andrew A. Duffy
The analysis is based on Statistics Canada's social policy simulation database and model. The assumptions and calculations underlying the simulation results were specified by the Times Colonist and the responsibility for the use and interpretation of this data is entirely that of the Times Colonist.
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HST will hurt consumers, says StatsCan
