B.C. Liberal leader Andrew Wilkinson is promising to eliminate the entire provincial sales tax for a year to try to spur consumer spending and economic recovery during the pandemic.
Wilkinson said he would “as soon as possible” scrap the seven per cent PST to try to encourage British Columbians to boost their spending, which in turn would help businesses earn more revenue and hire more staff during the economic downturn caused by COVID-19.
“A major cut to provincial sales tax to zero in the first year, and three per cent in the second year, gives people a chance to get ahead,” said Wilkinson. “It gives people the change to get out and do the things they want to do, to get out into restaurants, to enjoy life.
“This is a bold decision and it means we will have the chance to rebuild British Columbia the way we want it.”
After the first year, Wilkinson said the PST would return at a lower rate of three per cent, where he said it would stay until the economy has recovered.
The PST would still apply to cannabis, vape-related products (where the rate is 20 per cent) and luxury vehicles worth more than $125,000 (where the rate is also 20 per cent), according to the Liberal party.
The B.C. NDP countered Monday by saying a PST cut would disproportionately help the wealthy who spend more on luxury items.
The Liberals released economic estimates that an average family of four with an annual income of $120,000 would save $1,714 with the PST eliminated and $979 a year at the reduced PST.
The promise would have major economic implications for the B.C. budget, which is projected to have a $13 billion deficit this year. Next to personal income tax, the PST is the largest taxation revenue source for the province. The elimination of the PST for one year would mean an estimated $6.9 billion in lost tax revenue, said Wilkinson.
In B.C.’s most recent budget, delivered before COVID-19, the province estimated the PST would bring in $7.9 billion this year. However, consumer spending slowed during COVID-19 and the latest quarterly update, released in September, estimated the $6.9 billion in PST revenue this year cited by the Liberals.
A three per cent tax in future years would mean to a loss of more than $4 billion annually.
Wilkinson said the provincial budget will remain in deficit for the foreseeable future, and can accommodate the revenue loss.
“Everyone knows we’re in a big economic crisis and this is not a time to worry about the details so much as it is to get people back to work,” said Wilkinson. “One of the ways to get people back to work is to stimulate the economy by reducing taxes.”
The B.C. NDP has said Wilkinson is proposing to cut services like health care and education to accommodate his tax promises.
“We will not be cutting any of those services because at a time like this that is exactly when they are needed,” said Wilkinson.
The B.C. Business Council in the summer proposed cutting the PST in half to spur economic growth.
“This economy calls for bold action,” said Wilkinson.
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,” he said.
“It will, however, save a multimillionaire $70,000 on the cost of a yacht.”
Both left- and right-leaning economists have long called the PST a regressive tax that disproportionally impacts lower-income people because they spend a larger proportion of their income on living expenses and therefore spend a larger percentage of their income on sales tax than the wealthy.
B.C. Green Leader Sonia Furstenau said the Liberals could have found a better way to spend almost $7 billion.
“After 3 1/2 years in opposition, the best idea the B.C. Liberals can come up with is a sweeping, antiquated tax cut,” she said in a statement. “This shows an astounding lack of imagination.
“There are far more effective ways to spend $7 billion. 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.”
Richard Johnston, political science professor emeritus at the University of B.C., also said the move was unusual for the B.C. Liberals.
“I’m skeptical that it will have much effect,” he said. “To me it reeks of desperation to tell you the truth. And it represents a 180-degree reversal for the Liberal party on the question of taxation.
“There’s no question sales taxes aren’t popular, they are in your face. And the current sales tax, actually its instance is negatively related to income. People who consume pay it and generally speaking the poorer you are the higher percentage of your income goes on consumption.”
Jock Finlayson, senior vice-president at the Business Council of B.C., said a PST cut could benefit the economy.
“It would help to cement and solidify the economic recovery that we are now in the very early stages of, and it would do so by stimulated consumer spending, increasing the ability of households to buy durable goods and semi-durable goods and also making it more attractive for companies to invest in the province,” said Finlayson.
“I think it could play a helpful role on really putting us on the pathway for the economic recovery we desperately need.”
Marc Lee, senior economic at the Canadian Centre for Policy Alternatives, said the promise is an “interesting ploy” by a party that has long viewed tax cuts as economic stimulus.
“The idea of completely eliminating the PST for a year seems like more of a big bang approach that might get people a bit more excited in terms of consumer confidence, but typically those type of tax cuts don’t do a whole lot,” he said. “They put some more money in the pockets of people who are already going to be spending. But in terms of stimulating spending that might not already happen, the impact is pretty marginal.”
Nonetheless, Lee said there will be a psychological impact in the minds of consumers if the PST is eliminated that could cause some spending.
Lee also questioned whether the almost $7 billion in additional cost would be healthy for the province if it increases the deficit to almost $20 billion. During the crisis, economists have generally encouraged governments to spend whatever is necessary year to help people get through the crisis, and worry about the deficit levels later. Lee said that approach still stands, but the province also has fiscal limits to consider.
“Definitely maintaining that deficit spending makes a lot of sense, but generally you get more bang for your buck with a dollar of spending than you do with a dollar of tax cuts,” said Lee.