Ottawa made Victoria an offer it couldn’t refuse on HST — $1.6 billion in cash
Peter Simpson
Sun
Okay, in my July 18 column I said I would take a bit of a breather and my Westcoast Homes column would return at the end of August. Well, during the past week or so things have changed dramatically, and quickly, in B.C., and I felt I just had to comment on them.
First they said they wouldn’t, and then they did. The B.C. Liberal party, after stating before the provincial election it did not plan to introduce a harmonized sales tax, the HST, has done so.
On July 23, the federal and provincial finance ministers signed a six-page memorandum of understanding on HST. Included in the agreement, right up there in paragraph two, was the root of it all — the feds would pay B.C. $1.6 billion for jumping aboard. That’s way too tasty a carrot to resist.
The subsequent government news release offered this explanation for the switch to HST, effective July 1, 2010: “The [provincial sales tax] is an outdated, inefficient and costly tax, some of which is hidden in the price of goods and services and passed on to and paid by consumers.”
Here’s the thing.
Before the election, the Greater Vancouver Home Builders’ Association asked all major parties for their positions on HST.
The New Democratic Party responded it had no plans to introduce harmonization. The Liberal party said harmonization “would reduce the provincial government’s ability to unilaterally adjust sales tax rates and make it harder for future provincial governments to lower or raise sales tax rates, which reduces flexibility.”
Here’s another thing.
The home building industry and its customers are significant contributors to the provincial economy, yet the HST application on new housing, appearing in afterthought fashion, was referenced way down in paragraph eight of the news release, two paragraphs below feminine hygiene products.
The HST, in its proposed form, will add significant cost to new homes and home renovation. What choked industry leaders most was the fact there was zero consultation before the announcement.
And the timing couldn’t be worse. Canada Mortgage and Housing Corp. reported that B.C. housing starts during the first six months of 2009 were 5,287, down 69 per cent from the 17,101 recorded during the same period last year.
In the Vancouver region, January-to-June starts totalled 3,342, down 67 per cent from the 10,178 starts reported during the same period in 2008.
The government should have sought builder feedback on how the tax would impact their businesses and their customers, the home buyers, who always pick up the tab.
The recent HST bunfest in Ontario, where there was also no industry input, should have taught them the value of consultation.
The B.C. HST program calls for partial rebates for new homes priced up to $400,000, while homes priced above that threshold will receive a flat rebate of $20,000.
That might be acceptable if you live in Podunk, B.C. but if you reside in, say, the high-priced Vancouver region, the rebate is insufficient. The rebate threshold should be raised and indexed, so in future it rises along with price increases.
Last week I, along with business leaders from a wide range of industry sectors, attended an HST roundtable discussion convened by Premier Gordon Campbell and Finance Minister Colin Hansen.
Apart from a chorus of objections from the Canadian Home Builders’ Association of B.C, the Urban Development Institute, representatives from the restaurant industry and me, the event was a love-in, with business leaders high-fiving each other all over the place.
That’s okay; the HST will benefit some industry sectors by helping them to improve productivity, boost business investment and create jobs. I understand and respect that. It’s just that there is a lot of work to be done on the housing side.
We asked the premier and finance minister if they would work with the home building industry to ensure tax neutrality, so that home buyers do not pay any more tax than they do now. The response from the premier was speedy — “There is no promise for neutrality.” Campbell did, however, offer to work with specific sectors to try to find ways to soften the more onerous impacts.
“I get that there are problems,” said Campbell.
“We need to identify them and do what we can to mitigate them.”
One of the problems is the transition rules, such as how the HST will be charged on sales contracts written before July 1, 2010 but completed after the HST launch date. One upset builder said his projects typically take two years to complete and if he had known about this new tax he would have reconsidered his launch date.
We would like to meet Minister Hansen, although I believe, somewhat misanthropically, there will be little room for flexibility, except for the transition rules.
What was rolled out is likely how it will be. I hope I am wrong. Home buyers deserve better.
The tax burden on buyers of new homes has become patently unreasonable. In addition to the GST (soon to become HST) there are development cost charges imposed by regional and local governments, provincial property transfer tax, and an assortment of fees and levies.
As well, tax pyramiding — or tax on tax, when one tax is embedded in the price of a good and subsequent taxes are applied to that price — has become a growing concern across Canada.
The Altus Group, a Toronto-based economic consulting firm, was commissioned by the Canadian Home Builders’ Association to examine tax pyramiding.
Its soon-to-be-released report states that “tax-on-tax schemes score poorly in terms of principles of good taxation, including equity and fairness, simplicity, accountability, certainty, stability, transparency, visibility and neutrality . . . It is neither ethical nor fair to ask taxpayers to pay tax on top of taxes already levied.”
Zeroing in on the report’s last principle of good taxation, neutrality, which we are seeking in the provincial government’s treatment of HST, the Altus Group offers that “a good tax system should minimize effects on taxpayers’ economic decisions. The tax system should interfere as little as possible with individual decisions made in the marketplace.”
So many tax collectors, only one taxpayer.
One final thought. The proposed HST undoubtedly will fuel an already burgeoning underground economy in home renovation, characterized by cash deals, no contracts, no permits or inspections, no adherence to building codes, no liability insurance and no WorkSafeBC compliance.
B.C. homeowners are expected to spend nearly $7 billion on home renovation and improvement this year. They should resist the lure of cash deals and deal only with professional renovators, particularly those who agree to abide by the 10-condition code of conduct mandated by the RenoMark program.
Now I am taking a bit of a breather and my column will return at the end of August. Honest.
Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders’ Association. E-mail:[email protected]
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