If British Columbians vote to keep the harmonized sales tax, the provincial government will drop the rate to 10 per cent and send a $175 cheque to families for every child under 18 years old and to some seniors.
They'll pay for the changes by raising the corporate tax rate and postponing a planned cut in the small business tax rate, Finance Minister Kevin Falcon said in a presentation to reporters on May 25, a few weeks before ballots for a mail-in referendum are to be mailed.
"This became a question of fairness," said Falcon, noting that an independent panel's report on the HST found it had added a cost of $350 per family per year. That amount is significantly more than the government's earlier estimates.
"With this announcement today we're fixing that," Falcon said. He described the changes as a responsible way to lower the tax burden. The cheques will bridge the transition year, he said. "For a typical family with two kids, that's $350."
The HST would be reduced to 11 per cent on July 1, 2012, then to 10 per cent on July 1, 2014. Each percentage drop costs the treasury roughly $850 million.
Raising the corporate tax rate and delaying the small business tax cut will make up some $650 million a year.
'They're playing games': NDP
Businesses clearly benefit from the HST and in the public's view a rebalancing was necessary, said Falcon.
An initiative petition led by former premier Bill Vander Zalm forced a province-wide vote on whether to extinguish the HST and return to the PST and GST. Ballots are to be mailed starting June 13 and voting will close on July 22.
Polls have consistently shown the HST as introduced in 2009 to be unpopular and likely to fail in the vote. The changes announced today, which are to be introduced in the Legislature and will require federal cabinet approval, will only be made if the vote rejects getting rid of the HST.
"They're playing games with people now because they're desperate," said Adrian Dix, leader of the New Democratic Party. "This is an embarrassing day for them."
It will be the 2016-2017 fiscal year before families come out ahead, if you believe the government's own numbers, he said. But he was quick to add that the government lied during the 2009 election campaign and their numbers cannot be trusted.
"This is a huge net benefit to corporations," he said. "This continues to be a tax shift onto families and small businesses."
The government claims to be fixing the mess, but they were the ones who made the mess in the first place, he said.
British Columbians gave themselves the power to pass judgment on the HST through the initiative process, and they're going to do that, he said.
Genuinely engaging, says Clark
Increasing corporate taxes is a new direction for the BC Liberal government, acknowledged Premier Christy Clark, though she also said the hike is hopefully temporary.
"It's part of the change I'm bringing to government," she said, and suggested her willingness to make a change was part of why party members chose her to lead the Liberal party.
"I wasn't here when the government brought in the HST," she said. There was justifiable anger at the way the tax was brought in, and she shared that anger, she said. "All we can do is figure out how we go forward."
The government has spent several months seeking feedback on the tax from British Columbians, including through telephone town halls. "We are really genuinely engaging people," said Clark. "We're listening to them. We're acting on their recomendations."
The independent panel's figure for how much cost the HST added for families was a surprise, she said. "We're getting that $350 number down to zero," she said. "We're finding a way to pay for it by rebalancing the tax burden."
She noted that she has only been premier for two months, and thanked the finance ministry staff for their hard work coming up with options. (Falcon in his press conference earlier had misspoke and thanked transportation ministry staff, a portfolio he held before Oct. 2010.)
The Conservative Party's designated leader, John Cummins, said in an emailed statement that the changes would be bad for business. "By increasing the corporate tax rate two per cent and delaying the small business tax cut, the Liberals are hurting our economy -- and in turn families," he said.
"The initial purpose of the HST was to help business, and these changes eliminate that purpose," he said. Rebate cheques are a blatant attempt by Premier Clark to buy votes, he said.
The Canadian Federation of Independent Business, which represents small businesses, welcomed the changes, as did the Greater Victoria Chamber of Commerce.
The B.C. Food and Restaurant Services Association's president Ian Tostenson has reportedly said reducing the rate will do little to help his members.
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