HST impacts in B.C. and Ontario minimal, temporary, three months in: experts

TORONTO – Three months after the introduction of the harmonized sales tax in two of Canada’s biggest provinces, it has been blamed for everything from a slowdown in consumer spending and a squeeze on home sales to sending the federal deficit higher.

The tax, which combines the five per cent federal GST with provincial sales taxes of seven per cent in B.C. and eight per cent in Ontario, has also caused a political storm in B.C. and forced a referendum on the unpopular measure in that province.

A vote on whether to repeal the regime in B.C. is set for next September, which isn’t soon enough for Bill Vander Zalm, the province’s former premier who is spearheading the anti-HST campaign.

He says the HST has already contributed to a noticeable slowdown in the B.C. economy because consumers are being forced to spend more on taxes.

“You can’t take that much money out of the economy and expect that it won’t somehow effect it when you’re taking it from consumers,” he said in a phone interview.

In July, Canada’s economy shrank for the first time in almost a year, partly because of the introduction of the HST in B.C. and Ontario, according to figures released Thursday by Statistics Canada.

Housing sales have plummeted in those once-hot markets and retail sales have also taken a pounding.

But most of the economic bumps caused by the HST should ease going forward, says TD Bank chief economist Craig Alexander.

“You pulled forward sales of homes in the first half of the year, you pulled forward some of the consumer spending … so you’re going to have a dip, but that is a timing impact, that isn’t an impact of lost demand on a sustained basis,” he said.

The HST also added 0.7 per cent to the national consumer price index in July, but Alexander is confident the tax will contribute to savings that will offset most of the increase further down the road.

And the federal government warned this week that unaccounted for payments it must make to provinces that have adopted the harmonized sales tax could send this year’s projected record $47-billion deficit even higher.

At the same time, the business community has already started spending more on capital purchases, he added, indicating that the HST is already having some impact on stimulating business investment, which economists say will trickle down into job growth.

Under the HST, businesses receive input credits for the entire blended tax on most purchases. Like the GST, they’ll pay the provincial tax up front, but can recover the costs when they report their returns.

And while businesses are still working out some of the kinks, they are already seeing some of the benefits, which are eventually supposed to reduce sticker prices for consumers.

Bob Deeks, owner of RDC Fine Homes in Whistler, B.C., says new homes are already slightly less expensive than they were in the pre-HST period.

But it’s going to take some time to educate everyone in the industry about the new regime in order for costs to come down across the board, he added.

“The industry is going to figure this out because the drywaller who figures this out first is going to look more price competitive than his cohorts,” he said, adding that educating everyone about the GST took about six months.

Meanwhile, the consumer revolt in B.C. casts uncertainty on the future of the tax and the business friendly environment it is supposed to create, which could push some investment toward Ontario and leave B.C. behind, says David Robertson, a tax lawyer at Fasken Martineau.

Ontario Minister of Revenue Sophia Aggelonitis says her province could benefit from increased business investment as a result of the referendum in B.C.

“I do see opportunity, but I want to reflect I want all of Canada to be successful, but we’ll take as much business as possible of course,” she said.

The HST has already contributed to positive economic trends in Ontario, including the addition of 6,300 new jobs in August.

However, it will take at least one year to see the concrete effects of the HST and for businesses to pass along the savings consumers, Robertson says.

And the benefits are expected to take at least a decade to finally settle.

Even then it will be difficult to convince consumers it has saved anything because unlike its contribution to inflation in July, down the road it just won’t add any more rather than take away.

“But you’re not necessarily going to see a price drop,” he said. “What you’re going to see is prices won’t rise as fast as they had previously.”