In 2010, The Business Council of British Columbia, an association representing approximately 250 major business enterprises, circulated a report on consumer impacts of HST written by SFU Professor Jon Kesselman. It purports to demonstrate that:
“the HST is not a “tax grab” and that its overall impact on the prices including taxes paid by consumers is very modest … “
Kesselman argued that prices of a number of items had fallen since implementation of the HST although he recognized that:
“Public skepticism on this point is widespread.”
The eoncomist noted that business saved $600 million each year in tax savings on BC-produced exports but claimed that amount should not be viewed as a gift. He did however agree that:
“…For companies selling products with prices fixed in world markets, the savings from the HST translate into improved profitability…”
British Columbia and Ontario made HST effective in July 2010. Manitoba chose to continue with a separate provincial sales tax. It was one of the provinces Kesselman selected as a control to examine the degree of pass through savings. If the advocates of HST are correct that business will return its tax savings in the form of lower prices, then both British Columbia and Ontario should outperform Manitoba in the consumer price index. Well, here are the results, using Stats Canada monthly CPI reports by province, not seasonally adjusted.
Clearly, trend lines show that price increases in the two provinces that turned to HST have been higher than in Manitoba which stayed with dual sales taxes. Ontario has the highest rate of prices increases with BC second and Manitoba third. Kesselman, in his response to David Schreck’s critique of the professor’s paper for the business association, wrote:
The issue of whether, and to what extent, businesses have passed through their savings in the form of lower (or less rapidly increasing) prices is critical to assessing B.C.’s HST reform.
This CPI evidence suggests the pass through has not occurred as Kesselman argued. StatsCan reports support opponents of HST and their claims that the tax shift gave substantial benefit to business with no particular benefit realized by consumers. The provincial government’s stalling in reversal of the harmonized tax demonstrates that, contrary to Kesselman’s assertion, HST has been a “tax grab.” NDP small business critic Jagrup Brar introduced a motion asking the B.C. Liberal government to “fast-track elimination of HST. Liberal members refused to support the motion.
Another Kesselman statement in the report for the business council caught my eye:
‘With competitive product markets, one would expect the business taxes, like any component of cost, to be fully borne by consumers and their removal to be fully passed through to benefit consumers. To the extent that product markets are less than competitive, or oligopolistic with few suppliers of a given product, pass-through might be only partial.”
Of course, individuals with six-figure salaries might not be as aware as people of modest means that retail price levels in Canada compare badly with those of our southern neighbors. Largely, this is from concentrated ownership and lack of competition at the distribution level. The federal government helps maintain this situation with hopelessly weak laws respecting anticompetitive acts and, beyond that, erecting barriers at the border to inconvenience foreign shipments of goods direct to consumers.
Checking out products on Amazon.com and Amazon.ca, consumers find the same products offered north of the 49th parallel at prices often 50% to 75% higher. Amazon has been unable to add many products to its Canadian site without first agreeing to maintain prices comparable to other retailers in this country.
Zappos, an American online retailers of shoes, clothing and accessories recently stopped selling to Canadians and made this announcement:
“We have made the difficult decision to shut down the canada.zappos.com site and stop shipping to Canada…
“Product selection on canada.zappos.com is limited due to distribution agreements with the brands we sell in the United States. In addition, we have struggled with general uncertainty and unpredictability of delivering orders to our Canadian customers given customs and other logistics constraints…”
Canadians have grown used to paying substantially higher prices for automobiles — even those assembled in Canada for the USA — and electronics, clothing, furniture, appliances, fuel and auto parts, communication services, etc. The gap between Canadian and U.S. prices has widened for many goods despite a surge in the loonie that should reduce prices north of the border. In many cases the disadvantages suffered by Canadians can be traced to lack of competition and the strengths of American laws that restrict product distributors from imposing schemes of price management, schemes that are routinely tolerated in Canada.
Of course, that is a subject that the Business Council of British Columbia, and their academic handmaids, prefer to leave out of any discussion of prices.