Thursday, December 10, 2009

In Favour of the HST

I was getting ready for work this morning and watched the news as I normally do. This morning I was watching the Restaurants take on the government as they try to get the HST removed from dining out. I'm actually all for their fight, but I thought some of the scare tactics they used to be little over the top.

I probably won't make any friends saying this, but I'm actually all for the HST in general. I'd like to see a fee more exceptions added like hair cuts and dining out, but on the whole I think it's a good idea.

Combining the GST and PST in it's own just makes sense from a collection and administration stand point. The less government workers we have to pay the better. My apologies to any government workers out there, but from a tax payer stand point it just makes sense.

Also, what most of us don't realize is that you're already paying the PST on a lot of items that are "exempt". If someone has to pay PST on a component somewhere along the line and they're not allowed to claim it back, it becomes part of their cost. They're not going to lose money so they increase the price. Not only that, if that product is bought by a manufacturer, they pay the PST on the component that already includes PST and because they can't claim it back they pass it on to you. So in some cases you're paying PST multiple times over.

Once these companies are able to claim the PST back they'll be able to exclude this from their prices. Now, every time I've said this people tell me that companies won't do this. Well, now that I'm knee-deep in my Economics class, I'm reminded of what these people are forgetting or are unaware of. The Laws of Supply and Demand.

All other things being equal, if the price of a product increases the demand will decrease. Pretty straightforward. People polled are already saying they expect to spend less once the HST is implemented. So, if this happens businesses will start to sell less. Given they have the ability now to lower their prices without an impact to their bottom line, which will in turn increase demand, they'd have to be stupid not to. All other things being equal, if the price drops the demand will increase.

In fact some products like computer hardware and lumber exports are already looking for every opportunity to get their prices lower. This gives them that opportunity and I don't think you'd have to wait that long to see these drops.

On the other hand, services like haircuts and restaurants don't have this cascading tax to draw from. So they're left having to lower prices without the savings, or live with a reduced demand. So I can understand them being concerned.

It's possible that the decrease in prices elsewhere will alleviate the strain people will feel in these areas and they won't decrease their demand. Although I don't really see I have an alternative to getting my hair cut other than doing it myself (like I said no alternative). As for food...

We're still going to have the PST portion exemptions on certain products, not completely finalized yet. Also, if you didn't pay GST on something before you're not going to pay the HST on it either. I'm not going to stop eating out because of an extra $2 on a $30 bill either. Eating out has always been much more expensive than the alternative of eating at home. But we do it when we're in a hurry, to celebrate, to see friends, etc. I don't see those things changing.

I'd still like to see the restaurant exception added, but I don't like the restaurants saying people will be let go, tips will go down, etc. Restaurants will close, carnage, end of the world in 2012!

Like everyone, I'd rather pay less taxes. However, as taxes go, this is probably the best one I've seen.

Love to hear your comments, although I do expect a little backlash. Assuming anyone is reading this ;)


  1. I've been thinking about this for a while, trying to consider my thoughts to add to yours, but I'm not too sure. I guess the Laws of Supply & Demand make it look like a positive thing, but right now, I'm still not too sure. I've heard from the government stand-point it's a win-win situation (the provincial government gets money from the federal government for the taxes they've collected or something)but I certainly don't want to increase my taxes for them!!!

    Have you read this? Manitoba's thoughts on the HST. Let me know your thoughts!

  2. Yeah, I thought this article didn't have a very lengthy study...I would also like to find the actual study! But I saw it and thought of you & this article!

    I think you're right that we're not likely going to be spending the SAME amount of money on things with HST as we are now. I know my family won't!!! (there goes our yearly ski trip!...oh wait, we never went! but now we likely won't begin either! lol) So in that case, the comment of spending MORE in gas (I assumed they meant for your vehicle) etc, doesn't take any other information into account, which makes a biased study. Still an interesting one though. If we had the whole story! If you find it, let me know! :)

  3. Thanks for the link. I just took a look now.

    "The study suggests the average consumer would pay $160 more for gas and $35 more for home heating each year."

    I'm not sure what they mean by gas. Auto fuel or gas for heating? Either way the HST won't effect either, so this doesn't apply to us.

    I'll have to look and see if I can find the actual study. My guess though is that the study is assuming the decrease in expenses to the business won't be passed on to the consumer. I just can't see a scenario where that doesn't happen though.

    The increase would also have to assume that you as a consumer would continue to spend the same despite the increase in costs. That simply won't happen and goes against the law of demand.

    I don't want to pay more either, but I don't think this is as doom and gloom as the competition makes it out to be. I think it will be good in the long run, but in the short term it might hurt a little.

    Just my opinions of course though and would love to hear more arguments to the contrary.