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HST dismantling delay costing jobs in Victoria

September 2, 2011
Times Colonist
Author: 
Andrew Duffy

An 18-month transition period to wind down the harmonized sales tax and return to the provincial sales tax system "prolongs the agony" for the B.C. homebuilding industry, according to those who swing the hammers.

Homebuilders and renovators maintain the anticipated extended period of uncertainty as the HST is dismantled before the PST can be re-introduced will continue to cost them money and jobs.

"It keeps people confused about what to do and when to act," said Bill Patterson, president of Citta Construction. "The longer we prolong this transition the longer we prolong the damage. The sooner they get to it and get it resolved the better for our industry.

"The HST has been very harmful."

Homebuilders have railed against the tax since it was first introduced in 2009 and enacted in 2010. Previously exempt from provincial sales tax, new homes were subject to the combined HST when it came into being.

The provincial government provided some relief with a rebate of a portion of the HST, but in Greater Victoria that was unlikely to cover the full amount of the new tax on new single-family homes.

Buyers of new homes costing up to $525,000 are eligible to receive a rebate of 71.43 per cent of the provincial portion of the HST, up to a maximum of $26,250. Homes over $525,000 receive a flat rebate of $26,250, but the buyer pays the higher rate on the balance.

Patterson said even houses priced below the $525,000 threshold felt an impact of the tax.

"The HST never really had any effect on the price of those [lower-priced homes] but psychologically it seems to have had a severe effect on the market," he said. "But it's in the luxury housing [market] that there was a profound effect, that's where we really noticed it.

"It interfered with people being able to commit to the contract and people were postponing purchases."

Ron Bickford, president of Rob-Ron Construction, said unless the government acts quickly the housing market could continue to lag during the proposed 18-month period. "Why would anyone buy now before that tax goes away?" he said.

Bickford and Patterson, who count themselves as HST supporters on a personal level even though it hurts their businesses, said they would prefer to see the HST rejigged to mitigate the impact on homebuilding rather than going backwards.

And during the transition phase, Bickford would like to see some kind of compensation for would-be homebuyers in order to stimulate the industry rather than having buyers standing on the sidelines waiting for March 2013.

Underground economy expanded

"Business dropped dramatically under the HST," said Bickford, noting his company's renovation business has also felt the impact.

"Historically when new construction stops and people decide not to buy they renovate but we are seeing our renovation profit margin shrinking."

Bickford expects a lot of that work went "under the table" to avoid the new tax.

"As homebuilders that was our biggest fear; right across the country and areas where this tax came in the underground economy grew substantially," he said.

"Right now we hope the government comes to its senses. I believe the housing industry is a major contributor to hiring people and keeping the economy going and I would think they have to address this sooner rather than later."

A rush to beat the tax man?

Marty Clermont is less worried about what will happen over the first year or so of the transition period than what is likely to be felt in the last few weeks before the changeover.

The owner of Russ Hay's Bicycle Shop, who said the HST actually made little impact on sales over the last year, said by the time the HST only has weeks to live would-be bike buyers may be willing to sit and wait.

Under the current HST regime, the tax is charged on the sale of bicycles and their parts, both of which were exempt from the PST since 1981.

"It will be just like it was just before the HST came in, there's a rush to beat the tax man, and a month before the (PST is restored) people will hold off especially if there's no incentive to pay right there and then," he said.

"Again the retailer takes the brunt of a government decision and we will be forced to do something creative in the months leading up to it."

But Will Low, professor of sustainable business practices at Royal Roads University, said that 18-month transition period may prove to be more of a blessing than a curse for businesses.

"Eighteen months is such a long time out it would really have to be an item you wouldn't need for 18 months," he said, noting those types of items are typically the kind that have always included GST and PST, the components that make up the HST. "They are not the type of items that HST will disappear from."

Low also noted people still buy things.

"For the average consumer there's that kind of 'announcement effect' when people envisage what life might be like under a change of regime, but at the end of the day when you walk into a store the tax is still a small proportion of the cost," he said.

"So how much will it influence you? You will grumble the first couple of times but on most small items it's a relatively small amount and then it just becomes the new normal."

More a blessing than a curse?

That's what restaurant owner Andrew Moffatt found. While the restaurant industry attacked the HST as a killer suggesting it would cost the sector $750 million a year, Moffatt said his Heron Rock Bistro had a pretty good year under the HST.

"From what we studied about GST coming [in 1991] we thought there would be a fallout of six months to a year of people being more cautious with their spending and that proved true, but even in that period the experience wasn't negative for us," he said.

Moffatt said not only did the tax not hinder growth of the James Bay restaurant, it helped them improve their processes and systems to improve the business.

"It really helped us to realize we have to be better at what we're doing," he said, noting it also streamlined and improved the accounting process. "It made us stronger."

As for the 18-month transition period before a return to the PST, Moffatt expects the bluster, vitriol and focus on the HST has been spent.

Even Ian Tostenson has toned down the message from the B.C. Restaurant and Foodservices Association.

The BCRFA CEO, who is hoping for a compressed transition period, had said the HST was crippling the industry and in the first year of the tax it cost restaurants between $750 million and $1 billion and as many as 10,000 jobs.

And while he maintains the impact has been tough, he said in recent months people were getting back into the habit of eating out.