BC Liberal Leader Andrew Wilkinson kicked off the second week of the provincial election campaign by promising to reduce the provincial sales tax for two years, a commitment his opponents said would put a major hole in the province’s budget.
“This will give people a spring in their step,” Wilkinson said during a campaign event in Richmond.
People are reeling from the economic fallout of dealing with the COVID-19 pandemic and need the support, he said. “This will give people a chance to get ahead.”
The province currently charges a seven-per-cent PST on the sale of most goods and services, with the exception of essentials such as groceries. The tax raises around $8 billion a year, about 13 per cent of the provincial budget.
A BC Liberal government would reduce the PST to zero for a year starting as soon as it took office, then set it at three per cent for a year after that, Wilkinson said.
The measure would cost government $6.9 billion in the first year and $3.9 billion in the second.
The cut would boost the economy and is in line with a recommendation the B.C. Business Council made to the provincial government to help recover from the pandemic by cutting the PST in half for two years, Wilkinson said.
“We’re going to go a step further,” he said. “We’re going to stimulate this economy, bring in investment and create employment by getting rid of the PST for the first year and reducing it to three per cent the second year.”
NDP Leader John Horgan, who was speaking in Victoria when Wilkinson made his announcement, said he hadn’t seen the proposal or any assessment of it yet, but he was skeptical.
“When Mr. Wilkinson makes promises about taxes, historically they’ve been promises for those that are wealthy and well connected, not for regular people,” Horgan said.
“If he’s going to take that money out of the budget, I hope he’s going to tell British Columbians what services he won’t be providing,” he said, raising the possibility that a Liberal government would delay surgeries, starve schools for resources, or fail to fund childcare spaces.
Sonia Furstenau, the leader of the BC Green Party, said the province needs ideas that will serve everybody.
“For Andrew Wilkinson to suggest a tax cut [as] a path forward at a time when we need to invest in our province more deeply than we’ve ever needed to do before, is showing such an astonishing lack of imagination,” she said during a campaign event in Vancouver.
Wilkinson said it would be wrong for opponents to suggest BC Liberals would cut health care and education to pay for the tax cut.
“The provincial government has a fundamental duty to deliver services like health and education, and we will not be cutting any of those services because at a time like this that’s exactly when they’re needed.”
The provincial sales tax is a regressive tax, he said. The lower a person or household’s income is, the more of it they spend on sales tax.
“This is designed to get everybody in the economy livened up and out there and enjoying life again,” he said. “It will benefit people with low incomes the most as is well established by every economist you talk to.”
Marc Lee, a senior economist with the B.C. office of the Canadian Centre for Policy Alternatives, said it’s true that sales and consumption taxes are considered to be regressive. Lower-income households spend a higher share of their income on necessities and thus pay a larger share of their incomes on sales taxes.
This is why governments compensate lower-income households with PST and GST credits, he said.
Households that spend more would benefit more from a sales tax cut, he said.
According to B.C.’s Budget and Fiscal Plan for 2020/21 to 2022/23, a family of four with income of $120,000 a year pays about $1,700 in sales tax while the same size family earning $30,000 would pay $940.
Lee said it would be better to transfer money directly to households that need the help, through a provincial payment modelled on the federal Canada Emergency Response Benefit or higher welfare rates.
“It seems to me the Liberals always bring out tax cuts as their answer to everything,” he said. “I’m pretty skeptical it’s going to have much of an impact.... You’re sort of reaching the people who are already spending.”
Joel Wood, an associate professor of economics at Thompson Rivers University in Kamloops said a PST cut would help sectors that have taken the biggest hit due to the pandemic.
“The COVID recession has drastically hit the service sectors of the economy,” he said on Twitter. “Traditional stimulus, like infrastructure projects, help other sectors. A temporary cut in the PST will help service sectors, e.g., retail, food services.”
Rob Gillezeau is an assistant professor of economics at the University of Victoria who previously worked in the offices of B.C. Finance Minister Carole James and former federal NDP leaders Tom Mulcair and Jack Layton.
Cutting the PST would likely benefit higher-income households more than expected as people change their behaviours in response to the policy, he said.
While lower-income households have little flexibility in what they spend on, many of those with higher incomes would take the opportunity to make large purchases tax free.
“I would expect that gap to really open up for the one year of elimination,” Gillezeau said.
The cut likely would stimulate the economy, but so would any measure spending that much money, he said. It would be fairer and cheaper to just cut a cheque for $1,000 to every person in the province, he added.
Tax cuts the BC Liberals have promised so far add up to about 16 per cent of the province’s revenue. That could threaten the province’s AAA credit rating, he said.
“My initial reaction is: that’s a lot of money.”