A 0.5 per cent additional sales tax levied just in Metro Vancouver would spur more consumers to shop outside the region, raising questions over how the proposed tax will be implemented.
So-called “leakage” of spending east to the Fraser Valley or south to the U.S. is a concern, Metro mayors admit, and is likely to be most acute for businesses in areas close to the TransLink boundaries – Langley, Maple Ridge and South Surrey.
“One group that should be in favour is the Abbotsford Chamber of Commerce,” said Jordan Bateman of the Canadian Taxpayers Federation. “They should be popping champagne corks right now. The Bellingham Chamber of Commerce should be over the moon.”
The proposed tax will go to a regional referendum in the spring if the province consents.
Metro board chair Greg Moore questions how many residents would spend 30 minutes extra in traffic to save $5 on a $1,000 new TV.
But the extra half point PST would add $175 to the cost of a $35,000 car and New Car Dealers Association of B.C. president Blair Qualey says that could be enough to push some business out of the region.
“Even a half point can make a difference competitively if you’re on one side of the line or not,” he said. “People will drive down to the U.S. to save $3 on a brick of cheese or carton of milk.”
He said the PST hike, if approved, would be a particular blow to several new luxury car dealerships that have just been built in Langley by dealers unaware such a tax was coming.
Qualey also wonders if the tax would will be tacked on to the private vehicle sales tax on used cars.
He’d like vehicle purchases to be exempted altogether from any new sales tax for transit and will raise that with the province.
“The devil’s in the details and we don’t know whether it’s well thought out or sound or anything at this point,” he said, adding car dealers haven’t been consulted.
Mayors council chair Richard Walton said a blanket exemption for vehicles is one option that may be considered.
Alternatively, he said, Metro Vancouverites might be charged the new tax on vehicles based on their residency, forcing them to pay the extra half point even if they buy in the Fraser Valley.
“That’s up for the province to decide,” Walton said.
Transportation Minister Todd Stone said leakage is a concern for businesses in areas such as Langley, adding the province needs to consider how to address those concerns.
“There will be impacts no matter which source you go with,” Stone said.
The tax would make Metro Vancouver the first region in Canada where residents pay more sales tax than the rest of their province.
But other differential taxes in the region already distort business.
Most notorious is the 17 cent a litre TransLink gas tax, which creates an added incentive for some motorists to fill up in the U.S. and cross-border shop at the same time.
A regional carbon tax – which also had been under consideration but was rejected – would have had much the same effect.
Metro mayors decided the 0.5 per cent sales tax was the fairest way to raise the required $250 million per year, estimating it will cost the average household $125 annually.
One advantage of using the sales tax is it also captures some spending by tourists and other visitors from elsewhere in B.C., reducing the burden on locals.
Fraser Valley residents going to a Canucks game or Vancouver Islanders coming for a concert will all contribute.
An annual levy of $170 on every registered vehicle was also considered and rejected, because its estimated impact on the average household was higher – $230 per year – and was seen as unfairly punishing just one group of users: drivers.
Families with two or more vehicles would have paid more than average, likely hitting households in areas with poor transit service the hardest.
Raising the PST half a point is estimated to cost the poorest households less than $50 annually.
That lower estimate is because existing PST exemptions – including food, shelter, kids’ clothes and medicine – would also apply on the sales tax increase for transit.
The typical Metro Vancouver home already pay $250 a year in property tax to TransLink, on top of municipal property taxes, and mayors refuse to rely more heavily on that source.
They do still aim to pursue a road pricing system over the longer term that would reform the current practice of tolling one new bridge at a time.
The PST increase would, if approved by voters, take effect around April 2016.
The referendum requires a 50 per cent plus one majority across the region to pass.