When BC Liberals decided that HST was the single best reward they could offer big business, they relied on loyalists such as the Fraser Institute and the BC Business Council for ringing endorsements. A few otherwise respectable academic economists joined the applause, talking about efficiency and avoidance of tax cascading.
The claim of HST supporters is that large tax savings enable businesses to lower prices. We can examine one example. Taseko Mines Limited operates Gibraltar Mine, near Williams Lake, the second largest open-pit mine in Canada. Taseko, like other manufacturers had already been relieved of paying provincial sales tax on production equipment but they still paid the tax on legal fees, liquor, limo repairs, office chairs, copy paper, brooms and other payments. Under HST, Taseko now gets back all that money previously paid as provincial sales tax. That has allowed them an opportunity to lower prices. Not required them to lower prices, but given them the opportunity. They said no.
This chart shows a six month recap of copper prices spanning the time when HST was made effective:
In the three months following HST implementation, Taseko’s copper production costs were $1.40 per pound and the realized copper price was $3.76 per pound. Operating profit for the period rose by 86% compared to 2009. It was a good thing they did not have to pay provincial sales tax. Had that been the case, their profit increase would have been a point or two smaller.
Clearly, producers selling at world prices don’t pass through tax savings, they earn more profits. The price of oil in BC didn’t fall because Shell Oil and others paid no sales taxes to Victoria.
A McDonald’s Big Mac is $4.19 in St. John’s Newfoundland where the restaurant pays starting wages of $10.25 per hour. In Vancouver, where McDonald’s pays starting wages of $6.75 an hour, the Big Mac is the same $4.19. Strange. Don’t lower costs mean lower prices?
My spouse needed to replace her car’s keyless entry remote. Here is what she was quoted.
- Canadian Mazda dealer, price $199
- KeylessRide, American based provider of remotes, price $39
The point I’ve made repeatedly at Northern Insights is that lower costs result in lower prices only when competitive pressures ensure the pass through. Canada has very limited competition in many sectors, particularly in manufacturing and distribution. That has kept prices high in Canada, something particularly noticeable during times when the Canadian dollar is near parity with the USD.
Notice that economists and lobbyists are quick to promote policies that assist big businesses but almost never talk about the need for more effective competition in the markets. The Fraser Institute believes that every economic decision should be market-based but they don’t publish papers about improving competition. Their belief is in markets free of government regulation, not free of monopolies.