Editor, The Times:
The upcoming referendum on the HST and the PST/GST system presents an important choice for British Columbians. As the ballots will soon be arriving in the mail, we think it is important as economists to speak out on the way we view the debate.
While economists have different views on how to achieve a fairer economy, we are united in the belief that switching back to the old PST/GST system is the wrong way to address important social and economic problems.
It is well known that value added taxes (like the HST) are superior to retail sales taxes (like the old PST). Because the PST taxed some inputs at every stage of production, the 'cascade' of compounding taxes led to higher tax rates on investment. The HST, in contrast, taxes only final products at a clear and transparent rate. This is why 140 countries in the world use value-added taxes like the HST, and only a few jurisdictions in Canada and the United States still use taxes like the PST.
Economists know that removing a penalty to investment will produce more investment in capital goods like equipment, machinery, and buildings. These investments support growth in jobs and wages. Removing investment barriers like the PST from the tax system is best for the long-run prosperity of the province.
Many economists are also concerned about the fairness of outcomes produced by the economy. The new HST Credit, by providing $230 per year for each family member in low-income families, helps to improve the fairness of the switch to the HST. Moreover, by exempting basic food and rent, the burden of the HST on lower income households is again lightened.
We believe the HST represents a step forward for our tax system and for our economy. We urge you to consider these facts and to fill in your referendum ballots.
Jock Finlayson, Executive Vice President of Policy, Business Council of B.C.
Kevin Milligan, Associate Professor of Economics, University of B.C.
- with the support of 89 more economists from the academic and private sectors.