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B.C. Liberals To Lower HST Rate, Offer Rebates, Hike Corporate Taxes

If British Columbians vote to keep the HST in the referendum next month, the rate will be cut to 10 per cent by 2014, Finance Minister Kevin Falcon announced on Wednesday.

The cut would be in two stages, to 11 per cent on July 1, 2012 and to 10 per cent on July 1, 2014.

In addition, all families with children under 18 and lower income seniors will get by the end of the year a one-time transition cheque, which will be $175 for each child and $175 for seniors.

Falcon described the payment as a bridge for families to get them through to the first cut in the HST, which will take effect a little over a year from now.

The rebates now being sent out to low income British Columbians will continue.

The tax cuts and checks will be financed with an increase in the general corporate income tax from 10 per cent to 12 per cent on Jan. 1, 2012 and an increase in tobacco taxes. In addition, the reduction in the small business tax rate to zero, which was to have taken effect on April 1, 2012, is being postponed indefinitely.

Falcon said that business has been a beneficiary of the HST and some rebalancing was needed. That became clear after the Independent Panel on the HST found that tax change was costing B.C. families an average of $350 a year.

'This became a question about fairness and what we heard is that BC families didn't think that was fair,' Falcon said yesterday.

Even people who don't qualify for payments this year will be better off eventually because of the cuts in the HST, Falcon said.

If voters reject the HST, none of the changes will take effect and government will face costs estimated of $2.3 billion over three years. The government remains committed to balancing the budget under both scenarios by 2014/15, but if the HST is defeated, it projects a $2.6 billion deficit for the current fiscal year. In addition, $1.8 billion will be added to the long-term provincial debt.

Falcon said the government remains committed to the HST because it is a better tax for the economy, but if voters reject the tax in the referendum that starts June 24, it will honour that result and move to reinstate the GST and PST.

Returning to the PST/GST would not necessarily mean bringing back all the old exemptions, however, Falcon said.

"The only way we could do it is with a program cut in spending," Falcon said.

Single seniors with incomes up to $40,000 will receive $175 each. Senior couples with incomes up to $40,000 will receive $350. Payments will be phased out at incomes over $40,000.

The government estimates with a 10 per cent HST rate, B.C. families will pay $120 less tax than under the PST, compared to an increase of $350 a year that was estimated by the Independent Panel on the HST.

After the first cut to an 11 per cent HST rate, the average family will still pay $115 more than they would have under the GST/PST.

If voters turn down the HST, the province will not be able to afford to cut the PST rate as it plans to to do with the HST without running much larger deficits, Falcon said.

The legislature will be asked to vote on a motion, that was to be introduced Wednesday afternoon, affirming the changes that will still be dependent on the outcome of the referendum. The federal government will then have to approve the reduced rates.

Falcon said if the government had gone through the process it has now undertaken, the HST would have been a much more acceptable tax.

"Let's be clear that the Harmonized Sales Tax that we rolled out in 2009 was hardly perfect," Falcon said.

The general corporate tax rate increase is expected to cost business $390 million a year. The deferred reduction for small businesses would have been worth $280 million a year.

The government estimates that the HST provided a $2 billion benefit for business.

Falcon said the HST was not brought in with a lower rate initially because it introduced as a reaction to the financial crisis the government was facing as a result of the global recession.

FightHST leader Bill Vander Zalm said the policy changes show that his group's attacks on the HST are valid -- and he vowed to continue to lead the fight for repeal of the levy.

"These changes aren't surprising, I guess we saw them coming," said Vander Zalm, speaking from Fort St. John where he was attending a HST meeting.

"They've obviously realized they made a mistake. They don't want to back away from it completely and they are getting the message that the tax is not good. So they are trying to fix it by promises for the most part, although I guess a lot of people can expect a cheque in the mail."

Vander Zalm said that British Columbians should be wary of the new package. "We will still argue that the tax is very regressive and damaging. First of all there is no guarantee that they will keep their promise. It could be that there is such a need a year or two from now that they decide to keep it anyway. After an election I presume."

The former Social Credit premier said that "it's just crazy. Government should not function like this. It's stupid. They take the money from the people and then you give it back to them."

Chris Delaney, who co-founded FightHST with Vander Zalm, similarly said that "this is really an admission by the government that the HST has failed.. The crazy part of it is that they want to use the HST to offset the damage from the HST. So they're going to use this tax grab to give money back to people."

Delaney said his group will continue to argue that the HST should be terminated. "The good news is this: for the first time in B.C. history, the people can vote themselves a better deal than what the government is offering. So if you think lowering it by two percentage points over two years and getting a cheque is a good proposal then vote to kill the whole thing and get even more."

He added that "the B.C. Liberals always tout themselves as good economic managers. But it sounds like they came up with this policy on the back of a napkin last night."