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Two Months of HST Sees Consumer Price Index Rise

Finance minister said businesses might pass on cost savings.

By Andrew MacLeod 23 Sep 2010 | TheTyee.ca

Andrew MacLeod is The Tyee’s Legislative Bureau Chief in Victoria. Reach him here.

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Restaurant food prices jumped 6.7 per cent in August.

On several occasions, B.C. Finance Minister Colin Hansen argued that any increase in costs to consumers caused by harmonizing the provincial and federal sales taxes might be balanced by businesses reducing the prices they charge for goods and services.

Statistics Canada has released two sets of consumer price index (CPI) figures since the HST went into place July 1. Neither showed a drop. What's more, a StatsCan analyst says it may never be possible to figure out the tax's net impact on what people pay.

As Hansen explained it in August 2009, the move to the HST would drop costs for businesses that had been paying provincial sales tax. Those businesses might pass their savings on by reducing prices, he said.

"Consumers are paying for that embedded PST, whether they're paying for it at the consumer level or whether they're paying for it in the price of those goods and services," Hansen said. "I know that's a complex concept. I know it's a difficult one to communicate to Fred and Mary."

Some, including people with low incomes and middle income seniors, would pay less with an HST, he said. "Costs do come out of the system."

CPI up slightly

If costs for businesses are coming down, that's yet to register in the consumer price index.

According to StatsCan's Sept. 21 release, prices rose by 1.5 per cent in B.C. during the 12-month period that ended in August. That's slightly below the average national increase of 1.7 per cent.

The provincial increase, StatsCan found, was largely driven by a 6.7 per cent jump in the price of food from restaurants and a 6.5 per cent hike in the price of gasoline.

Daniel Cheung, a StatsCan analyst, said the Sept. 21 report didn't look specifically at the effects of the HST, though amounts paid for the tax are included in the index.

However, the agency's report from August, based on July figures, did see impact from the HST. B.C. had a two per cent increase in its CPI from a year earlier, and StatsCan found as much as 1.2 per cent of the increase was from the tax.

Ontario, which also introduced an HST July 1, saw a 2.9 per cent increase in CPI. StatsCan said at most 1.3 per cent was attributable to the tax.

HST effect hard to isolate: analyst

Hansen was unavailable for comment. A statement from the Finance Ministry said the government was expecting the HST to cause a slight increase in the inflation rate for the first year it's in place. As business costs go down, a portion will likely be passed on to consumers, the statement said. The ministry has said previously that businesses will pay some $2 billion less a year in sales tax thanks to the change.

The HST will have a complex effect on prices, acknowledged StatsCan's Cheung. While there's no evidence of it happening yet, the fact that it reduces costs for businesses means it is possible some of that money will be reflected in lower prices.

"It takes time for those savings to trickle down to consumers," he said.

Asked how long he would expect it to take, he said, "It all depends on how the economy works. It doesn't go right away."

And as time goes on, it may be impossible to say what's caused by the tax and what would have happened anyway. "I don't think there's any way to figure that out," he said. "To be exact, nobody knows."

Or, put another way, "Isolating the net impact is not an easy exercise."

As for B.C.'s official position on what the HST will do to prices in the province, it has shifted somewhat. In a Sept. 2 response to a poll that found many British Columbians believe goods and services had become more expensive, the Finance Ministry had this to say: "In fact, they cost exactly the same now as they did under the old PST."  [Tyee]

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