AlumNit is a
gluing-together of weblogs from people who have, at some point,
worked at NITI. Distributed
craziness abounds.
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It appears that if I view my own entries without signing in, there are ads in my journal.ADS.
In my journal.
Despite years of ad-free service, it appears that Russian management is the same in this day and age as during the 18th century: expansionist, imperialistic, and willing to stamp their dominance on people.
Well, thankfully, I'm no longer physically in Poland, but in Canada, and this gives the opportunity to evade my would-be Russian dominators.
Be advised that my search is on for an alternative blogging service, where I won't be fettered with bullshit ads.
I will attempt to transport my old entries there; in the event that I'm unsuccessful in any mass import, I'll leave this journal up as an archive and merely post new entries elsewhere.
After 9 years here, this is how they treat me. Fuckers.
(lkosewsk at March 16, 2010 08:12 UTC)
That does it. Today, I received something like the 500th invite to join some dumbass Facebook group from wannabe concerned citizens attacking British Columbia's initiative to enact the HST. Instead of actually joining such a group, nor joining a group that says "stop fucking bugging me with your misspelled and ignorant pleas," I decided to take time out of my day, yes, time that could be spent doing something actually productive, to read all about the HST in BC, and actually figure out whether it's worth bitching about or not. I admit; my initial bias was in favour of the HST, if only because the documents I saw from the government had actually passed by an editor who wasn't a semi-literate tree-hugging malcontent. That said, I attempted to examine all the evidence as best I could.
If you're not from British Columbia, or Canada at all, or you are from British Columbia and are an apathetic social mooch, here's the deal, in summary.
In general, if you live somewhere in Canada, you have three government structures above you: a municipal government (your city), a provincial government (Canada is split into ten provinces and three territories), and our Federal government (one ring to bind them all...). Each of these generally has a corresponding set of taxes that are levied for various services. This debate concerns (as it pertains to the province of British Columbia, or 'BC') the merging of the BC Provincial Sales Tax (PST) with Canada's Goods and Services Tax (GST) to create a new Harmonized Sales Tax (HST).
The idea is premised on a similar transition that the Canadian provinces of Nova Scotia, New Brunswick, and Newfoundland made in 1997, an operation evidently deemed successful by the BC government. Despite the apparent success, it's impossible to simply deduce whether BC's transition will be successful, since each province administers its own version of the PST differently, and, as such, the effects of a transition will be different.
I aimed to discover whether BC's transition plan is actually solid.
I'm not going to go into my research or reading about the Atlantic provinces and their transitions, because, as I state above, it's not terribly relevant. If there's a reference which is relevant, either factually or to support a point below, I'll include a link, but for the most part, let's look just at the facts as they pertain to BC's situation.
Very basically, the current GST rate on applicable goods in Canada is 5%. In BC, the PST rate on applicable goods is 7%. Therefore, the set of goods to which both GST and PST applies in BC is taxed at 12% (each tax is applied to the retail price, and not to the retail price plus one of the taxes). The main argument which makes adopting an HST in BC 'bad', it seems, is that the HST will make the union, or entire set of items, which were previously exempt from PST but not from GST, charge 12% instead of 5% tax.
In short, this is a tax hike.
That said, this is pretty much where the average Joe's cognitive abilities have ended. Time to go out into the streets and riot, you slack-jawed yokels! This level of comprehension negates the full breadth of the situation. No government would levy new taxes at a time when they could do immense harm (has anyone heard of our economic recession? I'm sure Gordon Campbell has.) just to piss people off. Well, how are they justifying this, then?
The government, in the usual manner governments tend to do, put out a very consistent but enthusiastic website on this issue. You can find it here. To prevent you from needing to wade through propaganda, I summarize the main motivations they state for the HST (colour commentary provided later):
- the HST will be a value-added tax (VAT), rather than the PST, which was a sales tax. More on this distinction later.
- the government ministry responsible for handling PST collection will be downsized and folded into the Canada Revenue Agency (CRA), reducing the 'heavy foot of government', as it were.
- the above bullet means that businesses will only need to remit and keep track of one set of taxes and remittance dates for collected taxes.
- as a result of the transition to a VAT and simplified administration, they expect a lot of savings for businesses, which will translate into job growth.
- in addition to job growth this way, they expect VAT to cut effective marginal tax rates on capital, which should stimulate monetary investment, particularly into industries with high capital purchase requirements.
- as a result of sales tax transitioning to VAT, they expect consumer item prices to go down over time (explained a bit later).
- ... if all that wasn't enough, to offset the increased taxes from formerly PST-exempt items, and riding the lowered administrative cost for the provincial government, there are planned tax cuts, in the form of lowered income tax and tax rebates.
OK, that's the summary. How do they envision this is going to work? First, let's explain the big difference between sales taxes and VAT. A sales tax is one that's applied at the point of sale on an item that's not being resold. What does that mean? It means that if I'm running a hardware store, a hammer, a tool which I purchase and resell to you (the consumer), I can buy without paying a sales tax. Paper on which I print my receipts, however, I have to pay taxes on, since I am the end user of the paper. When I sell you the hammer, I charge you sales tax on it, and remit that to the government. Effectively, this means that I, as a business have to cover the cost of my inputs (in my example, the receipt paper and the hammer) as well as the sales tax paid on my inputs (the sales tax on receipt paper).
In VAT, what I remit to the government is the difference between my input taxes and my output taxes. In the example above, I pay VAT on both, the hammer and the receipt paper. I also charge you, the consumer, VAT on the hammer when you purchase it from my store. However, what I remit to the government is the difference between what I charged you in tax, and what I paid. This means that, assuming that my taxes collected outweigh the taxes I paid, I only have to cover the untaxed cost of my input items as a business expense.
This has very interesting consequences down a long supply chain. Let's look at a very, very fictional example involving 3 companies:
- a company which sells paper (for receipts, work, etc.)
- a lollipop maker
- a pen manufacturer where the employees eat lollipops
First, a sales tax example. The paper manufacturer sells you paper. Let's assume that $1 of paper is required (for whatever administrative reasons) for the lollipop maker to create a lollipop. Assuming a sales tax rate of 10%, the paper manufacturer will sell it to the lollipop manufacturer for $1.10 ($1 + 10% of $1). Let's assume, for simplicity, that this was the only input cost on lollipops (impossible, I know, but just bear with me). The lollipop manufacturer wants to make a profit of 50% on his lollipops. He paid $1.10 for the raw material for his lollipop, so 50% is $0.55. He thus sells lollipops to the pen manufacturer for $1.82 (($1.10 + $0.55) * 1.1). The pen manufacturer marks up and sells pens to make $0.30 profit per pen. In order for this profit to be there, all of the input costs need to be covered. Suppose that the workers work for free, and one worker makes one pen, and for every pen, he eats one lollipop. Then, the cost of the lollipop is the input cost to make the pen. The pen maker paid $1.82 for the lollipop, so he charges you (the consumer) $2.33 (($1.82 + $0.30) * 1.1) for your pen. At the end of the day, the government gets $0.10 from the paper manufacturer, $0.17 from the lollipop manufacturer, and $0.21 from the pen maker in remitted taxes, for a grand total of $0.48, and you're out $2.33 for your pen. The paper maker made $1, the lollipop manufacturer $0.55, and the pen maker made $0.30.
Now let's look to see if VAT was in place, and the stores had the same motivations. Again, assume a VAT of 10%. The paper manufacturer is still selling his wares for $1 + 10%, or $1.10. The lollipop manufacturer wants to make a 50% profit. He knows that, since he's going to mark up his item, ie. 10% of his cost of sale will be greater than 10% of the cost of his inputs, he can disregard the tax he paid from his 50% profit calculation. Thus, he sells a lollipop for $1.65 (($1 + 50% of $1) * 1.1). The pen maker, wanting to make $0.30 on the sale of their pen to you, knows the same thing, so they charge $1.98 (($1.50 + $0.30) * 1.1), assuming a similar situation as above regarding total input cost of the pen. The end result? You're only out $1.98, saving yourself some money from the previous example. The government gets $0.10 from the paper manufacturer, $0.05 (= $0.15 charged - $0.10 paid) from the lollipop manufacturer, and $0.03 from the pen maker (= $0.18 charged - $0.15 paid), for a total of $0.18. The paper manufacturer made $1 in profit, the lollipop maker made $0.50 (= 50% of his costs, his goal), and the pen maker made $0.30, as they desired. Everybody won, except the government, which got less money than the previous example.
Most importantly, the example above illustrates that you the whiny consumer claiming they get taxed too much, actually saved money with VAT in place, because manufacturers were able to offer lower prices throughout the supply chain and still meet their profit goals. Let's say that each of our manufacturers wants to make an extra $0.02 in profit. That translates to roughly $0.07 in cost passed on to you, for a grand total of $2.05, which is still cheaper than the sales tax example. However, these companies each now have an extra $0.02 to invest into expanding their operations, and new hires.
That was the long example. Further ones should be shorter. Regarding the folding of the body administering PST into the CRA, well, once you get rid of some office assistants and redundancy in personnel between the CRA and the BC tax collectors, you save salary money. The important part for businesses here is that rather than keeping track of two filing deadlines, and hiring accountants to remit and calculate two sets of figures (GST and PST), only one set needs to be calculated, saving the expense and overhead of administrative calculation. Personally, as part of the management team at EQL Data, I can tell you that government remittances are no fun, and keeping track of them is a pain. Less time wasted on this overhead means more money which can be spent on hiring people and invested back into the company.
Regarding the argument for HST implying increased investment, in a very long-winded report the government commissioned on economic growth, the main argument is that the tax cut will help lower the marginal effective tax of capital, which will promote investment. What does this mean? Suppose that I'm a mining company, and I'm thinking of getting investment for a new drill. The investment only makes sense to me if my return on the drill (after I pay the government) is equal to my cost of funds for the drill. Let's suppose here that someone is willing to loan me money at 5% interest. The drill only makes sense if my return on it is 5% of the purchase price. Amongst other things, the report goes on to say, sales tax means that my return must be higher than the VAT case for me to be able to justify the expense. In my example, if my sales tax is 10% (and say this is the only government cost), then my drill actually has to make me a 5.56% return such that I can justify taking the loan (since 5.56 - (10% of 5.56) = 5). In the case with VAT, assuming that my sales are good, I may be able to completely write off the government cost, so that it makes sense for me to buy the drill even if it only makes me a paltry 5% return on its cost. Modern economics seem to generally agree that the marginal effective tax of capital is a significant factor for companies when looking to make investments.
Why would anyone think any of this is bad, then?
To that, we turn to the most organized contra-HST site I could find, and the main one pushed by counter-HST "proponents," if I can call you drooling apes that. For the purposes of objectivity, I will ignore the fact that a video starring Mr. Bill Vander Zalm adorns the front page of this site, and try to skip to the main arguments the site pushes against HST. Please feel free to email me more (lkosewsk małpa gmail.com). The arguments are:
- a number of goods which were formerly PST-exempt will now incorporate full HST, including (prominently) funeral home services and restaurant meals.
- marginal effective tax on capital is not an effective measure of corporate desire to invest, thus HST will not make a difference in actual business capital investment.
- the HST structure shifts tax burden from businesses (which, as in our example above, don't pay as much tax) to consumers (due to the non-PST exempt items costing extra).
- similar effects to the HST on business could be had by just eliminating the PST on capital investments.
- no public consultation before deciding to implement HST.
- even if the HST helps some businesses, does the help offset the damage done to the restaurant industry as a result of higher food prices?
- HST will cost an 'average' BC household an extra $2100/year.
- the HST removes BC's constitutional right to set and collect provincial sales taxes.
- the Liberal government (in power in BC) promised not to implement the HST.
- BC's economy is struggling, and the extra tax will hurt the economy further.
Hm. That seems like a pretty significant list of complaints. Let's attempt to discuss them all to see their validity.
Of course some services are going up 7% in tax. That was openly admitted. Unless these businesses are already earning less in revenue than they pay in input costs, though, the math we did above demonstrates that, in fact, their prices can be lowered, and their profit margin remain the same. It's difficult to calculate whether or not their prices can be lowered to offset a 7% tax increase right away, because that depends heavily on their supply chain, however, so we can't draw many conclusions there.
One thing we can attempt to work out is whether, assuming no change in consumer habits (which is unreasonable, because you can, in fact, assume consumers won't eat at restaurants so much if the prices are higher - mind you, in Canada, the taxes are not included in the prices listed on a menu, so the effect of the migration away from restaurants is also rather hard to flat-out predict due to human psychology), if the 7% tax increase in certain goods will actually hurt the BC consumer.
Here are some of the offsetting rebate initiatives planned by the government to counter the increased tax:
- No effective tax increase for hospitals or schools (link).
- Gasoline, books, diapers, and residential energy consumption are amongst the new items designated as exempt from the 7% portion of HST (link).
- Something I personally find very interesting: under PST, the private resale of used goods was subject to PST (mentioned here). Despite the fact that this was often overlooked by the government, reselling items (ie. homes) and not paying the government PST was actually tax evasion. For the purposes of more realistic laws, and fairness, HST is not being applied to the sale of used items (link, with regards to home buying. The link also discusses rebates on purchases of new homes - which are subject to HST)
- Despite the fact that this is probably backpedaling on their part to retroactively justify some tax cuts, they claim that tax credits for low income families (link) following general income tax reductions and increases in the basic personal amount for BC residents (link) are related to HST.
Alright, so some of this sounds like retroactive justification and flailing. But certainly, measures like the recently-introduced no HST on residential electricity sound good to me. I guess what I want to say with the above is that the figure of "$2100 increased cost for the average home" is probably just as made-up as the claim that BC's capital stock will somehow jump by $14.4 billion by 2020 because of this initiative. It's hard to say, without accurate income figures and other expenses, whether the raise in tax, balanced by cuts and rebates, will actually impact a person's real salary, particularly if the prices for products go down (and, in a properly fostered competitive environment, it's not impossible for them to do so).
There is more to explore. On the topic of public consultation regarding taxes: I'm glad the government didn't, frankly. Though I am very anti-totalitarian (unless I'm the tyrant in power), the amount of idiot opinions about the economy I hear every day from you flaks leads me to believe that it's very good none of you were consulted about tax structures. Nor do I care about the Liberals' promises not to invoke the HST... if I promised to never drive a car, but then broke my promise one day because you needed a lift to the hospital, you probably wouldn't be bitching much. There are valid reasons to break promises. As John Maynard Keynes put it: "when the facts change I change my mind. What do you do, sir?"
Where was I... marginal effective tax on capital. I personally don't buy the argument that it doesn't help with capital investments, if only because the one author who makes the claim also makes the claim that PST reduction could have been explored. That's terribly fishy to me, since PST reduction on capital also equals a reduction of marginal effective tax on capital. Are you for or against, friend? I don't know, but your argument here is on very slippery ground. This concept might actually be the very undoing of the whole "restaurants will go out of business if they have to charge 7% extra for food" argument. Consider; all restaurant expenses, from noodles to new chopsticks, fridges, tables, etc., can be written off of their HST in a way that PST never could be. While I don't own a restaurant, and am hard pressed to give you accurate figures into the running of restaurants, my hunch is that this 7% raise could be forgotten if food prices on menus start dropping (again, because tax prices are not included in menus on BC). The psychological effects alone could *increase* restaurant business.
This covers almost all the points I've seen against HST, with the exception of sales tax as a BC constitutional right (which you either care about or you don't, and I happen to sit in the latter camp). It's now 3:48 AM, which means I've spent far too much time sitting around writing this, and it's so long I doubt you'll get to the bottom of it. It has a bottom line though, which is really my plea.
Stop joining stupid anti-tax rhetoric without understanding the full ramifications of what's happening first. Governments don't take the decision to change tax structures lightly. Perhaps there is benefit in this for you after all.
(lkosewsk at March 16, 2010 07:49 UTC)
If you're not from British Columbia, or Canada at all, or you are from British Columbia and are an apathetic social mooch, here's the deal, in summary.
In general, if you live somewhere in Canada, you have three government structures above you: a municipal government (your city), a provincial government (Canada is split into ten provinces and three territories), and our Federal government (one ring to bind them all...). Each of these generally has a corresponding set of taxes that are levied for various services. This debate concerns (as it pertains to the province of British Columbia, or 'BC') the merging of the BC Provincial Sales Tax (PST) with Canada's Goods and Services Tax (GST) to create a new Harmonized Sales Tax (HST).
The idea is premised on a similar transition that the Canadian provinces of Nova Scotia, New Brunswick, and Newfoundland made in 1997, an operation evidently deemed successful by the BC government. Despite the apparent success, it's impossible to simply deduce whether BC's transition will be successful, since each province administers its own version of the PST differently, and, as such, the effects of a transition will be different.
I aimed to discover whether BC's transition plan is actually solid.
I'm not going to go into my research or reading about the Atlantic provinces and their transitions, because, as I state above, it's not terribly relevant. If there's a reference which is relevant, either factually or to support a point below, I'll include a link, but for the most part, let's look just at the facts as they pertain to BC's situation.
Very basically, the current GST rate on applicable goods in Canada is 5%. In BC, the PST rate on applicable goods is 7%. Therefore, the set of goods to which both GST and PST applies in BC is taxed at 12% (each tax is applied to the retail price, and not to the retail price plus one of the taxes). The main argument which makes adopting an HST in BC 'bad', it seems, is that the HST will make the union, or entire set of items, which were previously exempt from PST but not from GST, charge 12% instead of 5% tax.
In short, this is a tax hike.
That said, this is pretty much where the average Joe's cognitive abilities have ended. Time to go out into the streets and riot, you slack-jawed yokels! This level of comprehension negates the full breadth of the situation. No government would levy new taxes at a time when they could do immense harm (has anyone heard of our economic recession? I'm sure Gordon Campbell has.) just to piss people off. Well, how are they justifying this, then?
The government, in the usual manner governments tend to do, put out a very consistent but enthusiastic website on this issue. You can find it here. To prevent you from needing to wade through propaganda, I summarize the main motivations they state for the HST (colour commentary provided later):
- the HST will be a value-added tax (VAT), rather than the PST, which was a sales tax. More on this distinction later.
- the government ministry responsible for handling PST collection will be downsized and folded into the Canada Revenue Agency (CRA), reducing the 'heavy foot of government', as it were.
- the above bullet means that businesses will only need to remit and keep track of one set of taxes and remittance dates for collected taxes.
- as a result of the transition to a VAT and simplified administration, they expect a lot of savings for businesses, which will translate into job growth.
- in addition to job growth this way, they expect VAT to cut effective marginal tax rates on capital, which should stimulate monetary investment, particularly into industries with high capital purchase requirements.
- as a result of sales tax transitioning to VAT, they expect consumer item prices to go down over time (explained a bit later).
- ... if all that wasn't enough, to offset the increased taxes from formerly PST-exempt items, and riding the lowered administrative cost for the provincial government, there are planned tax cuts, in the form of lowered income tax and tax rebates.
OK, that's the summary. How do they envision this is going to work? First, let's explain the big difference between sales taxes and VAT. A sales tax is one that's applied at the point of sale on an item that's not being resold. What does that mean? It means that if I'm running a hardware store, a hammer, a tool which I purchase and resell to you (the consumer), I can buy without paying a sales tax. Paper on which I print my receipts, however, I have to pay taxes on, since I am the end user of the paper. When I sell you the hammer, I charge you sales tax on it, and remit that to the government. Effectively, this means that I, as a business have to cover the cost of my inputs (in my example, the receipt paper and the hammer) as well as the sales tax paid on my inputs (the sales tax on receipt paper).
In VAT, what I remit to the government is the difference between my input taxes and my output taxes. In the example above, I pay VAT on both, the hammer and the receipt paper. I also charge you, the consumer, VAT on the hammer when you purchase it from my store. However, what I remit to the government is the difference between what I charged you in tax, and what I paid. This means that, assuming that my taxes collected outweigh the taxes I paid, I only have to cover the untaxed cost of my input items as a business expense.
This has very interesting consequences down a long supply chain. Let's look at a very, very fictional example involving 3 companies:
- a company which sells paper (for receipts, work, etc.)
- a lollipop maker
- a pen manufacturer where the employees eat lollipops
First, a sales tax example. The paper manufacturer sells you paper. Let's assume that $1 of paper is required (for whatever administrative reasons) for the lollipop maker to create a lollipop. Assuming a sales tax rate of 10%, the paper manufacturer will sell it to the lollipop manufacturer for $1.10 ($1 + 10% of $1). Let's assume, for simplicity, that this was the only input cost on lollipops (impossible, I know, but just bear with me). The lollipop manufacturer wants to make a profit of 50% on his lollipops. He paid $1.10 for the raw material for his lollipop, so 50% is $0.55. He thus sells lollipops to the pen manufacturer for $1.82 (($1.10 + $0.55) * 1.1). The pen manufacturer marks up and sells pens to make $0.30 profit per pen. In order for this profit to be there, all of the input costs need to be covered. Suppose that the workers work for free, and one worker makes one pen, and for every pen, he eats one lollipop. Then, the cost of the lollipop is the input cost to make the pen. The pen maker paid $1.82 for the lollipop, so he charges you (the consumer) $2.33 (($1.82 + $0.30) * 1.1) for your pen. At the end of the day, the government gets $0.10 from the paper manufacturer, $0.17 from the lollipop manufacturer, and $0.21 from the pen maker in remitted taxes, for a grand total of $0.48, and you're out $2.33 for your pen. The paper maker made $1, the lollipop manufacturer $0.55, and the pen maker made $0.30.
Now let's look to see if VAT was in place, and the stores had the same motivations. Again, assume a VAT of 10%. The paper manufacturer is still selling his wares for $1 + 10%, or $1.10. The lollipop manufacturer wants to make a 50% profit. He knows that, since he's going to mark up his item, ie. 10% of his cost of sale will be greater than 10% of the cost of his inputs, he can disregard the tax he paid from his 50% profit calculation. Thus, he sells a lollipop for $1.65 (($1 + 50% of $1) * 1.1). The pen maker, wanting to make $0.30 on the sale of their pen to you, knows the same thing, so they charge $1.98 (($1.50 + $0.30) * 1.1), assuming a similar situation as above regarding total input cost of the pen. The end result? You're only out $1.98, saving yourself some money from the previous example. The government gets $0.10 from the paper manufacturer, $0.05 (= $0.15 charged - $0.10 paid) from the lollipop manufacturer, and $0.03 from the pen maker (= $0.18 charged - $0.15 paid), for a total of $0.18. The paper manufacturer made $1 in profit, the lollipop maker made $0.50 (= 50% of his costs, his goal), and the pen maker made $0.30, as they desired. Everybody won, except the government, which got less money than the previous example.
Most importantly, the example above illustrates that you the whiny consumer claiming they get taxed too much, actually saved money with VAT in place, because manufacturers were able to offer lower prices throughout the supply chain and still meet their profit goals. Let's say that each of our manufacturers wants to make an extra $0.02 in profit. That translates to roughly $0.07 in cost passed on to you, for a grand total of $2.05, which is still cheaper than the sales tax example. However, these companies each now have an extra $0.02 to invest into expanding their operations, and new hires.
That was the long example. Further ones should be shorter. Regarding the folding of the body administering PST into the CRA, well, once you get rid of some office assistants and redundancy in personnel between the CRA and the BC tax collectors, you save salary money. The important part for businesses here is that rather than keeping track of two filing deadlines, and hiring accountants to remit and calculate two sets of figures (GST and PST), only one set needs to be calculated, saving the expense and overhead of administrative calculation. Personally, as part of the management team at EQL Data, I can tell you that government remittances are no fun, and keeping track of them is a pain. Less time wasted on this overhead means more money which can be spent on hiring people and invested back into the company.
Regarding the argument for HST implying increased investment, in a very long-winded report the government commissioned on economic growth, the main argument is that the tax cut will help lower the marginal effective tax of capital, which will promote investment. What does this mean? Suppose that I'm a mining company, and I'm thinking of getting investment for a new drill. The investment only makes sense to me if my return on the drill (after I pay the government) is equal to my cost of funds for the drill. Let's suppose here that someone is willing to loan me money at 5% interest. The drill only makes sense if my return on it is 5% of the purchase price. Amongst other things, the report goes on to say, sales tax means that my return must be higher than the VAT case for me to be able to justify the expense. In my example, if my sales tax is 10% (and say this is the only government cost), then my drill actually has to make me a 5.56% return such that I can justify taking the loan (since 5.56 - (10% of 5.56) = 5). In the case with VAT, assuming that my sales are good, I may be able to completely write off the government cost, so that it makes sense for me to buy the drill even if it only makes me a paltry 5% return on its cost. Modern economics seem to generally agree that the marginal effective tax of capital is a significant factor for companies when looking to make investments.
Why would anyone think any of this is bad, then?
To that, we turn to the most organized contra-HST site I could find, and the main one pushed by counter-HST "proponents," if I can call you drooling apes that. For the purposes of objectivity, I will ignore the fact that a video starring Mr. Bill Vander Zalm adorns the front page of this site, and try to skip to the main arguments the site pushes against HST. Please feel free to email me more (lkosewsk małpa gmail.com). The arguments are:
- a number of goods which were formerly PST-exempt will now incorporate full HST, including (prominently) funeral home services and restaurant meals.
- marginal effective tax on capital is not an effective measure of corporate desire to invest, thus HST will not make a difference in actual business capital investment.
- the HST structure shifts tax burden from businesses (which, as in our example above, don't pay as much tax) to consumers (due to the non-PST exempt items costing extra).
- similar effects to the HST on business could be had by just eliminating the PST on capital investments.
- no public consultation before deciding to implement HST.
- even if the HST helps some businesses, does the help offset the damage done to the restaurant industry as a result of higher food prices?
- HST will cost an 'average' BC household an extra $2100/year.
- the HST removes BC's constitutional right to set and collect provincial sales taxes.
- the Liberal government (in power in BC) promised not to implement the HST.
- BC's economy is struggling, and the extra tax will hurt the economy further.
Hm. That seems like a pretty significant list of complaints. Let's attempt to discuss them all to see their validity.
Of course some services are going up 7% in tax. That was openly admitted. Unless these businesses are already earning less in revenue than they pay in input costs, though, the math we did above demonstrates that, in fact, their prices can be lowered, and their profit margin remain the same. It's difficult to calculate whether or not their prices can be lowered to offset a 7% tax increase right away, because that depends heavily on their supply chain, however, so we can't draw many conclusions there.
One thing we can attempt to work out is whether, assuming no change in consumer habits (which is unreasonable, because you can, in fact, assume consumers won't eat at restaurants so much if the prices are higher - mind you, in Canada, the taxes are not included in the prices listed on a menu, so the effect of the migration away from restaurants is also rather hard to flat-out predict due to human psychology), if the 7% tax increase in certain goods will actually hurt the BC consumer.
Here are some of the offsetting rebate initiatives planned by the government to counter the increased tax:
- No effective tax increase for hospitals or schools (link).
- Gasoline, books, diapers, and residential energy consumption are amongst the new items designated as exempt from the 7% portion of HST (link).
- Something I personally find very interesting: under PST, the private resale of used goods was subject to PST (mentioned here). Despite the fact that this was often overlooked by the government, reselling items (ie. homes) and not paying the government PST was actually tax evasion. For the purposes of more realistic laws, and fairness, HST is not being applied to the sale of used items (link, with regards to home buying. The link also discusses rebates on purchases of new homes - which are subject to HST)
- Despite the fact that this is probably backpedaling on their part to retroactively justify some tax cuts, they claim that tax credits for low income families (link) following general income tax reductions and increases in the basic personal amount for BC residents (link) are related to HST.
Alright, so some of this sounds like retroactive justification and flailing. But certainly, measures like the recently-introduced no HST on residential electricity sound good to me. I guess what I want to say with the above is that the figure of "$2100 increased cost for the average home" is probably just as made-up as the claim that BC's capital stock will somehow jump by $14.4 billion by 2020 because of this initiative. It's hard to say, without accurate income figures and other expenses, whether the raise in tax, balanced by cuts and rebates, will actually impact a person's real salary, particularly if the prices for products go down (and, in a properly fostered competitive environment, it's not impossible for them to do so).
There is more to explore. On the topic of public consultation regarding taxes: I'm glad the government didn't, frankly. Though I am very anti-totalitarian (unless I'm the tyrant in power), the amount of idiot opinions about the economy I hear every day from you flaks leads me to believe that it's very good none of you were consulted about tax structures. Nor do I care about the Liberals' promises not to invoke the HST... if I promised to never drive a car, but then broke my promise one day because you needed a lift to the hospital, you probably wouldn't be bitching much. There are valid reasons to break promises. As John Maynard Keynes put it: "when the facts change I change my mind. What do you do, sir?"
Where was I... marginal effective tax on capital. I personally don't buy the argument that it doesn't help with capital investments, if only because the one author who makes the claim also makes the claim that PST reduction could have been explored. That's terribly fishy to me, since PST reduction on capital also equals a reduction of marginal effective tax on capital. Are you for or against, friend? I don't know, but your argument here is on very slippery ground. This concept might actually be the very undoing of the whole "restaurants will go out of business if they have to charge 7% extra for food" argument. Consider; all restaurant expenses, from noodles to new chopsticks, fridges, tables, etc., can be written off of their HST in a way that PST never could be. While I don't own a restaurant, and am hard pressed to give you accurate figures into the running of restaurants, my hunch is that this 7% raise could be forgotten if food prices on menus start dropping (again, because tax prices are not included in menus on BC). The psychological effects alone could *increase* restaurant business.
This covers almost all the points I've seen against HST, with the exception of sales tax as a BC constitutional right (which you either care about or you don't, and I happen to sit in the latter camp). It's now 3:48 AM, which means I've spent far too much time sitting around writing this, and it's so long I doubt you'll get to the bottom of it. It has a bottom line though, which is really my plea.
Stop joining stupid anti-tax rhetoric without understanding the full ramifications of what's happening first. Governments don't take the decision to change tax structures lightly. Perhaps there is benefit in this for you after all.
(lkosewsk at March 16, 2010 07:49 UTC)
Or, Unexpected Musings as a result of being an Expat...
Roses on my table
So from my last post, you might be getting the impression that it's a grocery paradise over here. It's not quite so easy. One thing I've noticed in the stores in Amsterdam (though not at the amazing variety of farmer's markets) is an obsession with over-packaging. We bought some crackers once that, within the outer package, were individually wrapped in groups of 8. WHY??? Certain types of fruits and vegetables are packaged on foam trays with cling film, or in plastic bags, or simply wrapped in cling film. It seems intensely unnecessary and is one definite downside to shopping at the local grocery store chain. Once we have bicycles (something I hope to find second-hand and soon), I plan to do more shopping at the farmer's market where I can bring my own re-usable bags for things. On a related note, at D's workplace, they have a wonderful sounding canteen, but for hygenic reasons have individually wrapped each portion of cheese and meat. So to make a simple sandwich generates a ton of waste.
Something else I've noticed is that, as a result of the latest obsession with being environmental by taking your own bags shopping, there seem to be a zillion new bags being made. I see them everywhere from fancy designer ones, to promotional ones, to cheap department store ones. I mean, at least they're re-usable, but still, it seems excessive and little bit missing the spirit of the idea. I can only imagine that some will not be sold and that the excess stock will end up in a landfill somewhere.
Roses
I have been reflecting recently on consumption and waste and where we find value and meaning in our lives. A lot revolves around the food we choose to buy, grow, prepare, and eat. We have been eating a lot better since moving to Amsterdam. Mostly because we are being more frugal and cooking all our meals from scratch. We never ate a lot of pre-prepared food or ate out a huge amount, but we're doing so even less here.
Making this sort of drastic, long-distance-and-short-notice move, with its associated massive reduction in Stuff, has resulted in a lot more changes than just the scenery. It's forced me to think about just about every lifestyle choice and be more conscious in choosing what I want. When you don't experience any change, it's very easy to stay within your comfort zone and not examine WHY you do or believe something. So far, I think this has been the most rewarding part of this experience and not at all what I expected. I thought it would be the travel ... which will probably be great too, once we get to that part of the Expat Adventure. As it is, I've been far more productive in writing and drawing than I had been for ages, I'm getting much more regular exercise (love the climate here!), we're eating much better, I'm feeling very content with having fewer things (though I still am excited to get our boxes with what we did choose to ship), and I feel like I'm benefitting personally from consciously re-examining my beliefs and assumptions.
(apm at March 8, 2010 15:41 UTC)
First, I’m overdue in announcing Transit to Go a.k.a. “the iPhone transit map that’s demonstrably more useful than a paper schedule” a.k.a. “your bus departure in 15 seconds or less, no matter where you are”. I wrote up a blog post about it for Mindsea’s site, if you’re interested in finding out more.
Second, all this transit excitement has made me start thinking about better routing and geometry algorithms again. I’ve been experimenting a bit with Brandon Martin Anderson’s prender framework, used by the infamous Graphserver, and have been pretty happy with the results. It basically lets you do processing visualizations in python (i.e. no Java coding required). Here’s a quick picture of it in action, rendering the Nova Scotian road network, as distributed by geobase.
The neat thing about this framework is that you can render quickly to an arbitrary level of detail, which should prove very useful when troubleshooting the behavior of some of the code I’m working on. If anyone is interested in running the framework on MacOS X (like I was), my fork of the project has the appropriate patches.
(wlach at March 8, 2010 01:30 UTC)
sausages at the market
North America is big. Really big. You may think it's a long way down to the grocery store, and in general, it is. And this is the source of many problems.
First, when the grocery store is far away, you're likely to go less often. This has two consequences: you'll buy more food and less of it fresh. Buying more food generally leads to buying things you won't end up using (it's hard to always plan perfectly just what you'll need a week or more in advance) and fresh food tends to be the healthiest. So already, you're set up to be less healthy and to waste food.
Next, for whatever reason it originally started, stores in North America carrry enormous bulk sizes of things. The smaller quantities are then priced unnattractively, so that it seems like a financially sensible choice to buy the large size. This makes your groceries heavy and since your grocery store is far away, it's not feasible to walk. So you're spending more money because you're buying more food at a time and you're driving instead of walking, which is worse for both you and the environment (and costs you even more money when you consider all the tangential costs of cars).
Finally, because you've had to buy lots of food, in large quantities, you need a larger space to store all that stuff. So you're spending more on your home or apartment.
In contrast, consider if your grocery store was 5 minutes walk away. It would be more hassle to drive there and find parking than to just walk over. Then you'd have to buy less stuff because you'd need to carry it home, but if you're that close to the grocery store, you can go every couple of days. So suddenly, you can buy fresh food every couple days and be more accurate in planning what you'll use and get some exercise too. I was lucky enough in Montreal to be in this situation. There were small grocery stores scattered all over my neighbourhood, so I could easily walk to the store every few days. The one piece that still caused a problem, though, was the way small quantities of pantry items tended to be overpriced compared to the bulk sizes.
fresh scones
Something that annoyed me initially in Amsterdam was the lack of bulk sizes. I do a lot of home baking and go through flour pretty quickly. I was used to buying 10 kg bags. The bags of flour here are 1kg. However, the key difference I've realised is that I'm not paying a markup for the small package. It's about 0.58 € (includes taxes) and while I can't pop into a Canadian grocery store at the moment to check, I can just about guarantee that a 1kg bag of flour will cost more than $0.80! Once you lose the pricing incentive to buy the large size, it suddenly becomes clear that bulk purchasing is really not advantageous. It means you have more money tied up in "stuff" that you don't really need yet, for some things it means they won't be as fresh when you get to using them (or might even be spoiled if you get bugs or mice), and it means you need space to store all your bulk stuff. If you're walking home with groceries, it's also much nicer to be carrying 1kg at a time rather than 10kg!
I think many of our current problems in North America could be solved by returning to an urban model where it was convenient to walk to stores (and if we got over the obsession with bulk and "supersize" options). It would be better for our health, our pocketbooks, and for the environment. But why won't it happen anytime soon? Because it means more overhead costs for the corporations and thus smaller profit margins. Shopping at farmer's markets and smaller shops is great if you have that option. But what can people stuck with a distant, monolithic grocery store as their only option do?
I don't have the solution other than to say that it presumably works in Europe, so why not in North America?
(apm at March 6, 2010 13:38 UTC)
...at least if you measure it by counting the number of watchers on github.
It is also featured in the top 100 or so interesting github repositories, although there's no particular indication of what they mean by "interesting."
(Previously: bup: it backs things up. It's matured quite a bit since then, though, and is now usable for backing up real work that you care about.)