Aldyen Donnelly: HST and carbon taxes: job creators or destroyers? Depends on who you ask

(June 22, 2010) Charles Lammam and Niels Veldhuis would have us believe that net tax cuts are in the future for most BC households. But Finance Minister Colin Hansen’s 2010 Budget Fiscal Plan suggests otherwise. Who should we believe?

Colin Hansen’s most recent Budget and Fiscal Plan says that in 2012/13 B.C. citizens will pay $13,130 per person in personal income taxes, the provincial share of HST and individuals’ share of the new carbon tax, after accounting for all tax rebates, credits and income supplements for low income families. That is up 12.7% from the $12,270 per person they paid in fiscal 2009/10—and this does not include increases in individuals’ exposure to the net increase in the federal portion of the HST. Hanson’s own budget also forecasts that per capita personal income will grow only 8.5% over the same period.

In other words, BC’s official budget says that B.C. citizens’ tax liabilities are going up in both nominal and real terms as a direct result of the Province’s two recent tax shifts: from income to energy consumption taxes and from income to HST taxes.

Furthermore, BC’s Fiscal Plan explicitly estimates the values of all tax rebates and credits. If 100% of the estimated HST rebates and carbon tax credits are paid out to families in the two lowest income quintiles, they still fail to cover the net increase in tax liabilities those households will experience if they maintain taxable goods and services consumption at 2009/10 levels. This is before accounting for the fact that in Budget 2010 Finance Minister Hansen cut back, absolutely, the total funds available for income supplements and social services for low-income families for 2010/11 through 2012/13.
Given that 40% of those families don’t own even one car (and haven’t since 2006) and 60% of them rent accommodation in buildings in which they have no control over their energy consumption or costs, it is difficult to see how those families can change key consumption patterns to mitigate their net carbon and HST tax increases.

These calculations also do not account for the increases in health care, social insurance premiums and community service fees that will be required to cover the portion of the carbon tax and HST that government agencies, universities, schools, hospitals and not-for-profit providers of community services are expected to pass through to the communities they serve. Note that when any government finances income tax rate cuts with new consumption taxes, they actually effect a tax burden shift from the private sector to the public sector, which the public sector has to cover with increases in fees for public services.

Minister Hansen’s budget explicitly anticipates that municipal governments will pass at least 25% of their new HST liabilities through to property tax-payers as fees or tax increases; charities and not-for-profit services providers will pass through 43% of their new HST costs; schools will pass through 13%; universities and colleges will pass through 25%; and hospitals will pass through 44%.

The BC 2010 Budget does not disclose Minister Hansen’s estimates of the percentage of these public institutions and service providers’ carbon tax liability that will be passed through to citizens as fee and insurance premium increases. Crown corporations—BC Hydro, BC Transit, BC Ferries, the Insurance Corporation of BC, BC Lottery Corporation, etc.—are presumed to be able to pass 100% of their new HST and new carbon tax liabilities to the citizens of BC as rate and fee increases.

So Minister Hansen’s budget says that BC citizens’ individual tax liabilities will increase, absolutely and faster than their taxable income will grow.

Charles Lammam and Niels Veldhuis say that BC’s tax shifts will drive personal incomes up faster than personal tax liabilities will grow. Minister Hansen’s budget clearly forecasts that the provincial government will net $0.41 in income, carbon and HST taxes out of every $1.00 in income increase realized by BC citizens over the next 3 years. This is a very significant net increase in BC’s effective marginal tax rate for individuals.

Minister Hansen’s budget clearly forecasts that the provincial government revenues will increase 16.5% over the next three years, while personal incomes will increase only 13.%, and corporate income tax remits will decline, absolutely 3.3%. Charles Lammam and Niels Veldhuis say that BC’s tax shifts are “revenue neutral” for government.  Minister Hansen’s budget explicitly forecasts that BC’s economy will add only 0.48 jobs for every person who will join the labour force—swelling the ranks of those looking for a job—over the next 3 years.

Lammam and Niels Veldhuis say that BC’s job supply will grow faster than otherwise as a result of the Province’s recent tax shifts.

Who and what should we believe?

Aldyen Donnelly, June 22, 2010

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