I'll continue:
In 1997 three Atlantic provinces (Newfoundland and Labrador, New Brunswick, and Nova Scotia) harmonized their previously independent provincial sales taxes with the federal GST. Professor Michael Smart of the University of Toronto...
—he wrote for C.D. Howe, but he is a professor at the University of Toronto, so you have to give him some credibility for that—
...examined the effects of the harmonization in Atlantic Canada and found that, after the 1997 reforms, per capita investment rose by more than 11% in the harmonized provinces compared to the non-harmonized provinces.
People have been asking us to prove that it works. Well, we have a report here showing that 12 years ago there was an 11% increase in investment. Investment in machinery increased by more than 12% above the level of investment that existed prior to the 1997 reforms. All that is included in Professor Smart's report.
Another report is quoted here. It says:
Harmonization will also reduce unproductive tax compliance costs for businesses.... Currently, the group of goods and services upon which BC’s PST is applied (the tax base) differs from the tax base used for the GST. Differing tax bases, along with a host of different rules, force businesses that collect sales taxes to operate with two sets of sales records and two sets of compliance and reporting requirements. By simplifying the recording and reporting processes, harmonization is estimated to save BC businesses approximately $150 million annually in tax compliance costs.
Unfortunately, British Columbians will likely be exposed to many faulty objections and misperceptions regarding the HST over the coming weeks and months by those seeking to derail this reform.
A common misperception is that harmonizing the provincial sales tax with the GST results in a shift of the tax burden from business to individuals. This stems from the fact that business inputs will be exempt from the HST while a whole host of goods and services will be added to the tax base. Indeed, the expansion of the tax base is the primary reason why harmonization can occur at the existing 7% PST rate in a revenue neutral fashion.
If you look at what happened in other provinces that harmonized—and I think it was mentioned by speakers earlier tonight—in Newfoundland and Labrador, if there had been a complete amalgamation of the rates it would have been 18%, but it's actually 15%. That's because the province decided to reduce the number at the time of the amalgamation of the GST with their provincial sales tax. So there are options, but those options are provincial decisions.
Since the last amalgamation of GST and PST we've reduced the GST from 7% to 5%. I think we've done our share in reducing the sales tax burden that exists on our value-added tax. There is an option for provinces that are looking at amalgamating, if that's a choice they would like to make. I think it's still a choice, because the implementation of the new HST won't occur until the summer of next year.
I've encouraged my local folks to talk to their provincial counterparts, who are going to be able to make the decision, to look at what exemptions they're offering. In my view, a better system would be to look at reducing the actual portion of the HST that the province is collecting. So reduce from the 8% that's there now to maybe 7% or even 6% in Ontario. I'm not sure that's going to happen. But that's my suggestion on the approach for people who are not excited about the HST.
It's a provincial decision. What we're doing is putting in a framework, treating all provinces equally. Twelve years ago provinces were able to amalgamate their sales taxes. There's no reason we wouldn't allow additional provinces to continue that process. It's their choice, and that's exactly what this bill does: it provides choice for those provinces to do so. We're hearing from Ontario and British Columbia, of course. Manitoba has thus far indicated it's not that interested. I haven't heard from Saskatchewan, but maybe it's decided. I think for them to be competitive they will all have to look at it eventually.
Fortunately, if you live in Alberta, there is no provincial sales tax, so it's very difficult for it to amalgamate something it doesn't have--we'll see what happens in the future.
The article goes on:
However, the tax shift argument ignores the fact that the provincial sales tax is embedded in the price of many of the goods and services that are currently exempt from the PST. Since business inputs (goods and services) are taxed, consumers pay higher prices, even if the final good or service is not taxed. In his study of the Atlantic provinces Professor Smart found that...consumer prices in the harmonizing provinces...fell after the 1997 reforms...
--which somewhat offset the imposition of the sales tax.
We heard that from officials and people from the Chamber of Commerce. They couldn't put their fingers on exact numbers, of course. There was a reference to the experience that Canadians on the east coast had. Professor Smart at the University of Toronto, on behalf of the C.D. Howe Institute, has indicated that savings were passed on, and “As a result, overall consumer prices in the harmonizing provinces actually fell after the 1997 reforms. In addition, the tax shift argument fails to recognize that the burden of all taxes ultimately falls on people”--which is true. Eventually most companies or all companies, whatever taxes they're paying, add it to the price of their goods and they pass it on to the next individual, whether it's an input to the next company or to their final consumer, “in the form of higher prices, lower wages, and/or reduced rates of return on investments”.
BC's harmonized plan does have one critical flaw, however:
This is B.C. I think it's fair. I want to read you what Mr. Smart has to say. He feels its date should have been sooner:
Delaying implementation until mid-2010 may cause some businesses to hold off on major capital purchases--the opposite of what is needed in the current economic environment.
I'd remind you that this article was published this past September, obviously when things were not great. This was probably written before that, it's a middle-of-the-recession piece. His comment was that the province should have moved on it more quickly and not waited.
In reality, when there's this kind of change, giving businesses an opportunity to adjust is probably the correct thing. The author does make the point that it's possible businesses would have waited to make their capital purchases. The argument could be made the other way, that some things may be taxed in the future, which has got people to purchase in advance or move things up--home purchases, those kinds of things. So I think there's a balance there.
He goes on:
While it could be moving more quickly, the BC government should be commended for its decision to implement a harmonized sales tax. Improving the investment climate, increasing the competitiveness of BC-made products, and reducing tax compliance costs with little or no effect on consumer prices is wise economic policy. And that wise policy will ultimately benefit British Columbians through higher rates of economic growth, more opportunities, and a higher standard of living.
Mr. Chair, that's the end of that particular article.
There are quite a few references and notes, but I have others that I would like to talk to you about. In the meantime, I would like to thank the Library of Parliament for the work and reporting they've done. There is an excellent chart at the back of their report. It talks about the RST versus the value-added tax. I wanted to point that piece out.
One group that I thought was interesting and that provided us with some valuable information was the Tax Executives Institute. We heard from this group during the review of our pre-budget consultations. Who are the tax executives? I think it's an important group. These are the people in relatively large companies who actually calculate the taxes, the tax experts within these organizations.
We have tax experts here from the ministry, and we appreciate the work they do. We work around here, but the vast majority of government work is done by its bureaucracy, and I want to thank them for that. They're here at 9:45 listening to politicians talking about stuff they already know. It's not quite there yet. I appreciate every time we have an opportunity to have you in front of us. I appreciate the answers. I may not always agree, but I'm sure they're factual. I have been wrong in the past and will be wrong again. But there is so much to know. Members of the committee can't know everything. Having you and your expertise and experience should give us comfort that there are people of talent looking after things for us.