Taxpayers in British Columbia are outraged about the harmonized sales tax (HST), and rightly so. It will add a new tax to many items previously exempt from the provincial sales tax (PST), such as restaurant meals and new homes. The HST does, however, have some theoretical benefits. It simplifies the tax system and makes the province a more competitive place for business investment.
Nevertheless, the surprise HST announcement was met by a business lobbying effort demanding relief from the tax. One group that got a break was the new home building industry. While this may help a few new home buyers, it undermines the tax simplification benefits of the HST and does little to improve B.C.'s competitiveness. In fact, the government could have bolstered the competitiveness of the province and helped all families struggling to purchase homes by eliminating the property transfer tax instead.
The property transfer tax (PTT) hits all property sales. It has no economic benefit, taxes mobility and is a job killer that discourages companies from locating in B.C. The PTT adds 2 per cent to the property price, less $2,000. So, a family struggling to buy a $525,000 home would have to pay an additional $8,500 in PTT.
The PTT was brought in by the Vander Zalm government in 1988 and became such a fantastic cash cow that no government since has eliminated it. Yet, the B.C. government knows the PTT is a bad tax. A motion at the BC Liberal Convention in 2006 moved that the government abolish the PTT. The resolution was passed with overwhelming support and is part of BC Liberal party policy.
But this is where party policy and government policy diverge.
This tax generated almost $1 billion in revenue each year over the past five years on the backs of families struggling to buy homes, searching for a better life in new locations, and on businesses trying to expand. It makes B.C. a less competitive place for business investment.
Not only that, the revenue brought in by the PTT makes the break on the HST for new home buyers look like chump change.
Since it announced the HST, the government said it wants to be sure some new home buyers pay 'no more' in tax on new homes than they would have paid before the HST. Then, to show it had been listening to complaints about the HST, the government raised the threshold for the HST rebate on new homes from $400,000 to $525,000, and the maximum rebate from $20,000 to $26,250. This move will only put about $80 million per year back into the pockets of homebuyers, far less than what eliminating the PTT would have.
So the question becomes, why would the government complicate the HST and pander to the building industry by giving them a break instead of just getting rid of the PTT? The government might say it was because it listens to its key support groups. However, the real reason is more likely because government is addicted to the revenue stream the PTT provides.
If the government were truly interested in making B.C. a competitive place for business investment and helping families buy homes, it would eliminate the PTT.
