Thursday, March 24, 2011


One of the things that I’ve seen in BC in the last decade is a shift from income tax and other hidden taxes to open consumption taxes and user fees. While many people complain about being taxed and feed to death now-a-days, I don’t think they realize that they were already been taxed to death, just more covertly in the past. Any economist worth his weight will tell you that moving to consumption taxes (and fees) are better than skimming people’s pay cheques with income tax. In fact, we haven’t even had income tax in Canada for a century. With consumption based taxes, you can also encourage people to make smarter choices like driving less due to carbon tax and tolling.

I cringe when I hear talk from some political parties, both provincially and federally, that want to axe user fees and consumption tax and move back to the bad old days of income tax or deficit spending. While it may appear “free”, you actually end up paying a heaver price now and in the future. With income tax, you are left with less money to save, invest, or do any of the good things that we are told we should do and actually end up being less productive. Government services tend to get bogged down and over-used without user fees because of a lack of proper valuing. We end up with congested roads, burdened water systems, and exhausted infrastructure.

All this to say that user fees and consumption taxes are something that will be needed in BC if want our government to be able to invest in all the thing we take for granted everyday and help guide us in making smart environmental and economic choices.


Gabriel said...

I doubt that "any economist worth his weight" would agree with you, though some would. Consumption taxes tend to be regressive, while income taxes are progressive. A society that collects taxes primarily through consumption/sales taxes is placing the burden on its least well-off.

Gabriel said...

Also not sure what you mean by "we haven’t even had income tax in Canada for a century." I don't see any way that that is true.

Nathan Pachal said...

With consumption taxes, there are ways to make sure that those who are least well-off can get rebates. If you look GST/HST basic groceries and other basic items are already exempt from tax. Also, those who are most in need are probably not paying income tax right now anyway, so there won't been much change. As far as Income Tax in Canada. It was introduced to pay for the World Wars (I learned that in Social Studies in grade 11)

Bregalad said...

Income tax is based on ability to pay.

Consumption taxes are regressive because as income rises the percentage of income spent goes down.

I like to see sales tax applied to any house that isn't your primary residence. I'd make sure that non-resident tax was applied to foreign visitors too.

Tax all the people using real estate as an investment and maybe the rest of us wouldn't have to live 40km from work.

Joe Zaccaria said...

There were several high profile economists at this year's Surrey Economic Forum. All supported the HST and each had unique reasons why they did.

Unlike income tax, HST is fair. Don't want to pay? Don't consume. Te argument that it unfairly impacts the poor is illogical at best because necessities of life are HST exempt and if you are poor, you get an HST cheque from e government.

This argument sounds like when Carol James got up during question period and went on and on about her poor friend who owned a small book store in Victoria and how this HST would be putting her out of business. Then the Finance Minister rose to explain that books are exempt from HST!

Gabriel said...

That some things are exempt from consumption taxes doesn't change the fact that the taxes are regressive, having a higher impact on people with lower incomes. Of course it helps that necessities are exempt, but those things that are taxed will impact lower-income people more. And "don't consume" is not a satisfactory answer.

Income taxes are progressive, and arguably fairer, because people pay according to ability.

I'm not arguing against the HST, by the way. I support it. I was countering Nathan's claim that economists are somehow against income taxes. There is no such consensus. And Nathan, yes, the income taxes were introduced for WWI but they are very much with us today.

Nathan Pachal said...

Gabriel, I agree with you that income tax is progressive and consumption taxes are regressive. In the real world, we are likely to always see income tax in Canada, but moving more towards consumption taxes allows more flexible in encouraging people to make smart choices.

Gabriel said...

A relevant post on taxation in the US:

Gabriel said...

He cites this just-released book, which I haven't yet read:

"Taxing the Poor demonstrates how sales taxes intended to replace the missing revenue--taxes that at first glance appear fair--actually punish the poor and exacerbate the very conditions that drove them into poverty in the first place. "

Nathan Pachal said...

Interesting. Property Tax is an interesting tool to keep as well and I didn't talk at all about removing that. In fact, transit funding and other funding it is probably be funded with property tax because it is the most stable source of funding in Metro Vancouver.