Is That the Smell of Desperation? Why the BC Liberals’ Sales Tax Cut Is Bad Policy

Surely we should know to beware BC Liberals bearing tax cuts. Like party leader Andrew Wilkinson, who promised this week to eliminate the seven-per-cent provincial sales tax for a year and cut it to three-per-cent “until the economy recovers from the COVID-19 pandemic.”

Wilkinson, trailing badly in opinion polls, said the sales tax cut “will give people spring in their step.”

Beyond the gift of springiness, the BC Liberals’ argument is that a sales tax cut will encourage people to spend more. And that will mean more jobs, they argue, and help people through the pandemic-driven economic crisis.

It’s a problematic approach. First, will a seven-per-cent price cut actually encourage people to spend more? If someone has balked at going out for a $60 dinner in the pandemic, a $4 discount isn’t likely to change their mind.

And second, will that spending result in more employment and economic growth? In some cases, for sure. Someone who was thinking about a $30,000 kitchen reno might be persuaded to go ahead if the project was $2,000 cheaper without the PST. (Or not, given the risks of having strangers in your home during a pandemic.)

But most increased shopping — especially online — will have little or no impact on jobs in the province. And most people aren’t spending because their income has fallen. They’re worried about their jobs, or they simply aren’t prepared to venture into stores and restaurants in a pandemic.

Wilkinson acknowledged the party hadn’t done a proper analysis of the benefits of eliminating the PST. Which, even in a snap election campaign, is a little alarming for a proposal that would cost the province $6.9 billion in the first year and $3.9 billion for each subsequent year.

The proposal raises a few key questions. First, is this a smart way to spend more than $10 billion? Second, what would the BC Liberals cut when they decide — inevitably — that it’s time to eliminate the deficit, already projected at $12.8 billion for this year without the lost PST revenue. And third, how likely is it that a BC Liberal government would ever restore the tax?

George Abbott has answers to those three questions, and a useful perspective after more than a decade in BC Liberal cabinets — including when then-premier Gordon Campbell introduced a surprise 25-per-cent income tax cut. (Abbott’s book on the experience — Big Promises, Small Government: Doing Less with Less in the BC Liberal New Era — was published this month.)

He said the tax cut isn’t likely to spark a surge in spending, as people’s purchasing habits have been shaped by COVID-19, not prices. “Saving rates have been going up steadily throughout the pandemic,” Abbott told The Tyee. “People have been cautious in their behaviours, and rightly so.

“If we were going to spend $10 billion over the next couple of years on stimulus, I don’t think you would do it by eliminating the PST.”

Abbott said, for example, that the government could fund work to ensure communities are prepared for the effects of climate change. People could be hired to do work now to reduce the risk of damaging wildfires and floods.

“That excites me as a stimulus project. It will get people working, it will make communities safer,” said Abbott, who co-chaired a review of 2017 fires and floods in the province. And the investment will save the province “a bundle” in reducing future costs of fighting fires and dealing with damage, he said.

There are other better ways to spend $10 billion that would provide jobs and economic activity while making the province a better place, says Abbott — like building more affordable housing.

If local governments could provide land, $10 billion would pay for 40,000 units across the province.

Abbott said all parties have shifted their focus from balanced budgets to pandemic response right now. But that will change. “I don’t think it will be very far down the line when governments reverse course or are compelled... to start clamping down.”

And when that time comes, would a BC Liberal government — heading toward the next election — be willing to reinstate the sales tax? Or would it look for cuts to services?

Wilkinson has said he wouldn’t cut health or education spending to pay for the tax cut. But as Abbott notes, the lost revenue will make it difficult to maintain or improve services, or undertake needed initiatives like primary care improvements.

We’ve been down this road. The BC Liberals cut income taxes by 25 per cent on their first day in office in 2001. They then used that lost revenue to justify service cuts across government. Some of those decisions have contributed to the biggest problems of the pandemic — the deaths in long-term care and crises in homelessness and overdoses.

Sales taxes are at least somewhat regressive — people who spend most of their income on basics pay a higher relative share.

But Wilkinson’s proposed cut delivers the biggest break to people who already have the most money. A single person with $80,000 income would pay about $1,160 less in tax. Someone getting by on $30,000 would save $460. A family of four with two incomes totalling $120,000 would save $1,714. A senior couple with $40,000 in income, $943.

The proposal smacks of desperation, a signal that the BC Liberals’ polling shows they’re heading for a big defeat and need to gamble on quick-win policies. Abbott is skeptical. “The short-term politics may be great here — the long-term politics not so much.”

But in fact, even in the short term, the tax break seemed to fizzle with voters, or has been taken as a sign that the BC Liberals haven’t shed the opportunistic ways that many voters rejected in 2017.