The B.C. government is getting to work dismantling the harmonized sales tax, a job that may take more than a year and add billions to the province’s deficit.
The HST was rejected by 54.73 per cent of eligible voters, Elections BC reported. The government has promised to abide by a simple majority of voters.
Premier Christy Clark vowed that the former provincial sales tax will be reinstated with the same exemptions that existed before July 2010. That means restaurant meals, haircuts and a variety of services will only be subject to the five-per-cent federal goods and services tax, but the transition is expected to take a year and a half.
Referendum voting by constituency shows a split mainly along party lines. The strongest vote against the HST was more than 75 per cent in the NDP-held Surrey-Green Timbers and more than 72 per cent in Vancouver-Kingsway, the home constituency of NDP leader Adrian Dix.
A narrow majority of voters supported the tax in Abbotsford, Fort Langley-Aldergrove, Oak Bay-Gordon Head, Westside-Kelowna and other seats held by the B.C. Liberals. The strongest support for the HST was more than 64 per cent in West Vancouver-Capilano and 62 per cent in Vancouver-Quilchena, the seat held by Colin Hansen, the former finance minister who introduced the tax in 2009.
A smiling Dix welcomed the result Friday as a win for democracy. He said the B.C. economy has performed well for decades with a retail provincial sales tax and he is confident it can do so again.
Former premier Bill Vander Zalm told CBC television he is relieved that his two-year effort to kill the HST has succeeded. He said he will be watching to see if the government introduces any other tax measures to recoup the revenue lost due to B.C. and Canada’s first-ever successful initiative vote.
Finance Minister Kevin Falcon has estimated that scrapping the HST will cost the province about $3 billion in the next few years. The B.C. government will have to borrow to pay back the $1.6 billion transition fund from the federal government, with a payment schedule that will have to be negotiated with Ottawa.
Falcon said there will be pressure on B.C. to contain spending, but he intends to meet his target of returning to a balanced budget by 2013-14.
The finance ministry projected that the HST would bring in an additional $600 million in revenues in each of the next two years, based on economic growth and extending the seven-per-cent provincial portion of the sales tax to a variety of services.
Another cost to the provincial budget will be re-establishing a provincial sales tax administration and audit department. About 300 provincial tax collectors were transferred to the federal payroll when the HST took effect in July 2010.
Businesses will have to forgo input tax credits available under the HST, and convert cash registers and accounting systems back to collecting the GST and PST separately.
The B.C. government finished the 2010-11 fiscal year with a deficit of $309 million. Revenues for the year included the second instalment of the federal HST transition fund.