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HST – Wages will rise and pigs will fly

By Peter Ewart

Monday, August 31, 2009 03:45 AM

One of the more outrageous claims made in the BC Liberal Throne Speech was that the imposition of the Harmonized Sales Tax (HST) will “raise wages.” This same claim has been made by the Business Council of British Columbia and the C.D. Howe Institute, both of which are organizations of the largest monopolies and multinationals in the province and the country (1).
Such a claim will be of special interest to workers all over British Columbia, but especially forestry workers who are currently in contract negotiations with the big forest companies. Many of these forest companies, of course, including Canfor and West Fraser, belong to the Business Council and are presumably in agreement with its analysis.
However, in their recent negotiations, these forestry workers have been facing huge pressure from the forest companies to cut wages by as much as 20%. Now that the provincial government has announced that the HST will be imposed next year, does this mean that the forest companies will abandon their previous demand for a 20% wage and benefit cut from their workers? More than that, will they now agree to actually raise the existing wages? After all, that is what the Business Council is claiming the HST will allow its member companies to do. 
The Business Council also says that corporate savings from the HST will increase “labour productivity.” But they, of course, don’t explain just where that “increase” will take place? Many of the Business Council member companies are actually multinationals, many of which have their home bases in other countries. Will the increase in “labour productivity” happen in these other countries or will it happen here? 
Look at the case of Canfor corporation. In the recent past, it took revenues generated in British Columbia and bought mills in the Southern United States. What is to stop it from investing any HST “savings” in those mills again or in other operations outside of BC?
Furthermore, do increases in “labour productivity” necessarily result in “higher wages” as the Business Council claims? Any worker in a mill or factory can tell you that the relationship between the two is tenuous at best. In fact, oftentimes an increase in “labour productivity” simply means that the gap is widened between what a worker receives in wages and the amount of added value he or she actually produces for the company. Indeed, various studies have shown that over the few decades real wages have stagnated in Canada while productivity has increased dramatically (2) (3).
We live in times when fairy tales are presented as facts. Given its recent statements on the HST, it would not be at all surprising to see a press release from the Business Council claiming that a flock of pigs had been spotted over Prince George flying south. And, of course, we can be sure that Liberal MLAs, ever loyal to the Business Council and Gordon Campbell, will be out on the rooftops gesticulating wildly and pointing at the empty sky.
(1) “BC Government opts for harmonized sales tax.” Business Council of British Columbia. July 28, 2009.
(2) “As Canadian productivity has increased, workers’ pay has stagnated.” – Centre for the Study of Living Standards. Ottawa, Canada. 2008.
(3) “Rising profit shares, falling wage shares.” Canadian Centre for Policy Alternatives. 2007.
Peter Ewart is a writer and researcher based in Prince George, British Columbia. He can be reached at:



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Pigs Fly!!! Only in Victoria where politicians have no problem voting themselves huge wages and pensions [pork barreling!].
The first sentence in the article above sets the following premise:

"One of the more outrageous claims made in the BC Liberal THRONE SPEECH was that the imposition of the Harmonized Sales Tax (HST) will “raise wages.” "

Here is a link to the Throne Speech:

It mentions job creation in several areas. In fact, in several of those areas I would say that it is an overstatement as throne speeches of any party in power are prone to be. The goals are set high. It is up to us to achieve them or reject them.

What is not mentioned in the Throne Speech are wage rates, wage increases, taxation sytems changes.

The word "tax" is used only in the following phrases:

1. "By living smarter, we can save on energy, water and fuel consumption. We can reduce waste and get better value from our land, our limited natural resources and our tax dollars."

2. "This year the government will undertake a study of the opportunities and costs involved in the establishment of a new Independent Living Savings Account framework.

It would allow citizens to choose to invest a certain portion of their income each year, up to age 75, in a tax-sheltered savings account that can be used for home care support, assisted independent housing and supportive housing options."

3. "All the money raised from sales tax, Medicare premiums, tobacco tax, health-care fees, federal health transfer payments and corporate income tax combined does not cover the costs of our health services."

Pray tell, which "Speech from the Throne" could Mr. Ewert possbily have read? Certainly not the one from BC!!
Early in the morning ......
Reading the CURRENT "Speech from the Throne" ... mea culpa :-)

It states: "Savings on inputs currently taxed by the PST will improve our companies' ability to re-invest in B.C., expand their businesses, decrease bureaucracy and regulatory costs, increase productivity, raise wages and create more jobs."

To me that is a list of a number of things that will "improve out companies' ability" to do.

It implies that each company will do one or more of those things, but not all of them and possbily not even any of them, Unlike the agreement in France with the restaurant industry of how the 10%+ reduction in VAT on restaurant meals will have to be responded to by the industry, there is no such agreement in our "free enterprise" system.

The claim is that there will be cost savings. The list of how those cost savings may affect the operations of a company includes:

1. re-invest in B.C.,

2. expand their businesses,

3. decrease bureaucracy and regulatory costs,

4. increase productivity,

5. raise wages

6. create more jobs.
The big question is to what extent will any of these happen. Unless we want to make agreements with various industrial sectors of how their "savings" will be applied in their sectors, we continue to be working with blind faith in the free enterprise system.

Who out there is ready to implement such agreements?
The CURRENT "Speech from the Throne" also includes these statements:

"All ministries and Crown agencies will work to find new ways of doing things so we can deliver quality services at lower costs.

Central to that endeavour is the need to CONSTRAIN WAGE-RELATED spending pressures.

Rising PUBLIC SECTOR WAGE AND BENEFIT costs only put more pressure on government to find savings through layoffs and other workforce reductions.


This government will not contemplate wage rollbacks, as some have suggested.

But NEITHER WILL IT FINANCE NEW WAGE HIKES through higher debt, through reductions to core services or through vastly increasing public sector layoffs. Our focus instead will be on protecting jobs to preserve the delivery of services while our workforce strives to rejuvenate its ranks for the future, in the face of its aging profile.

Mr. Ewert did not point to this statement. I find the statement interesting since the a money a company saves may go to higher wages as one option rather than passing the savings on to the consumer. The consumer thus ends up paying the same price for something plus an additional sales tax in the case it did not have a sales tax before. In effect, the tax could then go to raised wages for a private service worker.

So, it is okay for the increased tax to go to pay private wage increase, but not public wage increase.
Governments focus on the easy targets first, and public sector employees are one of the easiest. Every time there are budget difficulties, whether real or artificially created by policy, you can bet that the public service will feel the effects. Of course, when the problem is resolved and the public sector unions play catchup, all hell breaks loose about those damn overpaid workers ripping off the public.

The fact is the public sector managements are very adept at hiding cut backs, and it can even appear as a shortage of employees and difficulties recruiting at the same time as the number of hours worked declines. PGRH did that for a long time.

One such was to reduce hours worked all accross the board. Each employee was made to work, say, 90% of their contracted weekly hours and paid accordingly, management exempt of course, but still listed as full time. They were in the process of doing that (the % may have been different) when I retired.

Also, many positions were formally converted from full time to part time, so some things just never got done.

There are lots of tricks managements can do to make it appear that cutbacks and underfunding have a minimal impact, but something always has to give.
The HST means as a retailer, I must spend 7% extra on purchases for retail. Sure, it's credited back a month later.
So I will be "lending" 7% of my purchasing power, interest free to the gov't each month.
I also lose the small commission for collecting the PST (in my case about $75 month).
So how does lending 7% of my capital and losing $75 a month commission amount in any way to a "saving" for me?
Yet here is the party claiming to represent me, and an association claiming to represent me both lying through their teeth with statements that there are huge savings that will pass on as savings to consumers and wage increases for employees?
I'm disgusted that no one is honest enough to tell the truth, they need the money and a tax increase is how they're going to grab it!
Want to "save employers money"? Then get rid of MSP premiums and actually reduce our costs $50 - $80 a month per employee!
I think every business is going to be affected differently.

For instance, since the restaurant meals in Ontario are already taxed provincially as well as federally, the restaurant owners will not be affected by the change to HST there other than having a simpler tax reporting system and changing their computerized POS settings.

It would be nice to see a few sample calculations which will follow the effect through the business and identify any positive and negative change.

I think arguments on both sides of the fence are merely words without much evidence of the claims and certainly little clarity.
The "increase in productivity" mentioned will come about at the cost of further "labour displacement". When Canfor, or any other company for that matter, invest in new machinery that allows their plants to achieve more output with less overall labour input. Otherwise they wouldn't invest.

There may be some new 'jobs' created when this machinery is built and installed, but much sawmill machinery that used to be made in BC or Canada is no longer made here anymore.

The installation 'jobs' will be transitory. When the plant's been built, they're done.

This machinery would currently be taxed at 7% provincially and 5% federally (GST).

Under the HST, companies will recover that 7% provincial tax as an Input Tax Credit to be applied against the HST they collect on the products they sell, same as they now do with the 5% GST. Products they sell in Canada. To Canadians.

There is NO HST applied to 'exports'. But unlike the current BC 7% tax now, the HST paid on their capital and operating purchases will be credited back to them regardless.

In effect we are, as consumers, forced to bear a 12% tax to consume all the products we make or services provided not now taxed provincially, to subsidize "exports". From plants which will decrease overall employment long term, through increased productivity.

Which will allow us to further flood markets already glutted with product, and run the further risk of punitive trade restrictions initiated by competitors producing in those countries for their home market.

While the wages of those still employed may very well rise, providing we can access foreign markets unimpeded with still 'more' product, how many will still be employed? And what, pray tell, do we propose to do to get an "income" into the hands of those who aren't?
Your scenario, socredible, is one that I forsee as well and is one I have not yet seen anyone talk about.
This is exactly the case we're going to be in with our purchases in our business too, deadwood. Many times we take delivery of product, "materials for further manufacture" in our case, and therefore currently exempt the BC 7% sales tax, (though we do have to pay the 5% GST), and it's then several months before the "further manufacture" takes place, and even longer before the finished products actually sell.

So we're now going to be out another 7% every time we make such purchases. In effect an interest free loan to the Campbell government, until we can claim back what we've paid as an Input Tax Credit, after the finished products are made and finally sell. And we, too, loose the commission to partially re-imburse us now for the collection and remission of the current BC Sales Tax.

And this from a government that's supposed to be "business friendly"? The only businesses they befriend are those who want to continue exporting all our resources for less than they're really worth, and the big Banks that finance them.
The "loan" to the government is not on the total annual cash flow through the production side but only on the monthly average of the value of inventory on hand, whether it has been through the value added manufacturing or assembly process yet or is sitting there as finished inventory to sell.

Thus, if you maintain a full year's sales of combined inventory, then you are paying that 7% on the amount you have spent on acquiring your "feedstock". Not only that, but if you have added the value as well, you have paid employees as well as yourself and have likely taken out a business loan to cover all or part of that, and the rest is your "investment" that is sitting there like dead wood, not being used to re-invest or take profits from.

From thence commeth the concept of "just-in-time" delivery, as well as "just-in-time" manufacturing.

As I am sure you know, every business has a somewhat unique profile of characteristics which have an optimum "just-in-time" capacity that limits how far one can push that process management tool before undergoing missed opportunities due to shortage of products or services when there was an unexpected demand.

Thus, if the process is optimized at a twice annual turnover, then the effective annualized interest rate on the component which is taxable is 3.5%. I would think that in small business cases it should not be any longer than that. It could go as low as 3 times annual turnover quite easily I would think in a well run operation = 2.33%.

Since the tax is only on a component during the purchase, stocking, manufacturing and sales inventory placement, the likely effect is a 1% perhaps as high as 1.5% increase in cost which must be passed on to the consumer.

There is no doubt that there is an increase to the consumer that must be passed on in that case, but it is not 7% in most cases. How much it is depends on the type of industry, how it was taxed previously and how efficiently the business is run.

If I am off the mark, then let me know where and why.
Wow, this article must have hit a sore spot. 13 posts and 8 of them by Gus.
Will Brodsky be charging HST on his Cougars tickets?