B.C. Election 2020 Reality Check: Who benefits from eliminating the PST? And who doesn’t.
What happened: B.C. Liberal Leader Andrew Wilkinson said Monday that, if elected, the Liberals would “rebuild B.C.’s struggling economy” by eliminating the seven per cent provincial sales tax for one year, and then reinstate it at three per cent a year later, until the economy had recovered. This, Wilkinson argued, would boost consumer spending and thus help businesses earn more revenue and hire more staff.
The proposal brought immediate criticism from the NDP and Green parties. Reaction from economists, business leaders and academics was mixed, ranging from calling it a good move to help the economy to a political move that reeks of desperation. Politics aside, the biggest question is: Who will benefit the most from this promise?
Wilkinson: “Eliminating PST puts more money in people’s pockets, stimulates growth for struggling small business, and helps British Columbians who are struggling to get by. This is a vital step to rebuild our economy.”
NDP candidate George Heyman said the tax cut favours the wealthy, who spend more money on more expensive items: “It doesn’t help people with rent, groceries, car insurance or child care, because those are already exempt from PST … It will however save a multimillionaire $70,000 on the cost of a yacht.”
Green Leader Sonia Furstenau called for more investments in people, instead of cutting revenue: “This old school style of economics is not what B.C. needs to recover. We need to target our recovery efforts to the economic sectors that need it most. We need to get people back to work through high quality services like early childhood education.”
Will this benefit the rich or the poor? The NDP says axing the PST will mainly help the rich, because they buy more expensive things. But experts told Postmedia that the PST is really a regressive tax, so it hurts poor or middle-class people more because they spend a higher percentage of their income on consumable goods, and therefore a larger proportion of their money gets eaten up by the PST. Mark Lee, an economist with the Canadian Centre for Policy Alternatives, says the PST delivers “a bigger hit as a percentage of your income for lower-income households, than higher-income households.” But he hopes spending on key programs won’t be cut in response to the revenue loss, arguing that governments “get more bang for your buck with $1 in spending (programs) than you do with $1 of tax cuts.”
How much would a family benefit?The Liberals say a family of four with total income of $120,000 would save an average of $1,714 in year 1, and $979 the next; A single parent earning $60,000 would save $924 in year 1, and $528 the next. These figures are taken straight from the NDP’s 2020 budget. London Drugs president Clint Mahlman said consumers will cross-border or online shop to avoid paying taxes, so eliminating the tax should encourage them to start shopping locally again — something that will bolster the economy. “What we see is enormous efforts that consumers go to avoid paying taxes because price still remains amongst the No. 1 or No. 2 considerations when they are purchasing goods.”
How will businesses benefit? The Liberals say business groups believe the PST inhibits investment and that the B.C. Business Council asked for a “bold PST cut” in July. The business council asked for the PST to be cut in half for two years to kickstart the economy. Jock Finlayson, the council’s senior vice-president, said what the Liberals are proposing is a “bigger step” with a “bigger fiscal price tag.” Still, he believes the “extraordinary” move is necessary because the province is still down 150,000 jobs, more companies are expected to close, and the economy is not expected to fully recover until mid-2022. The PST cut could “reduce a lot of this carnage,” he said, but the revenue will need eventually to be replaced.
What is the hit to government coffers? The Liberals say the cut will cost $6.9 billion in the first year, and $3.9 billion in the second. An NDP quarterly economic report released month backs up those numbers. The PST is the second largest revenue source for the government, after personal taxes, so its loss will be significant for future deficits and/or government spending. “I think this is a dangerous move, in that it will have a big impact on provincial revenues,” said Richard Johnston, a UBC political science professor emeritus.