Why British Columbia and Ontario need the HST

April 23, 2010

Roslyn KuninVANCOUVER, BC, Apr. 23, 2010/ – On July 1, the cost of becoming more productive and competitive will fall significantly in B.C. and Ontario, as the harmonized sales tax replaces the provincial sales tax.

The PST directly adds to the cost of machinery, equipment and the technology we need to invest in if our businesses are to become productive enough to survive in global market. The new tax – the HST – can be deducted from the tax collected when the firm sells its final output. Not only will this save our industries billions of dollars, but it will also go a long way to helping us deal with a strong dollar and improve our economy and our lives.

Better than Americans?

Canadians think we are at least as good as Americans, if not better. We are more polite than they are. We say please and thank you more often. We don’t carry arms. And Canadian citizens, if not always Canadian teams, play the best hockey.

There are also many similarities: We speak the same language as our U.S. neighbours, shop in similar malls, live in the same kinds of houses and hold the same kinds of jobs. Moving south of the 49th parallel is not nearly as big a change for Canadians as moving to Asia, Africa or even South America or Europe.

But there are some important areas where we are not keeping up with the Americans. In fact, now that our currency is at par, they are eating our lunch.

When Americans go to work, they turn out more goods and services each hour than do Canadians – they are more productive. As the accompanying graph shows, American output per hour worked has been higher than Canadian productivity over the lifetimes of most Canadians. And the difference is growing as U.S. productivity improves faster than ours. In the last quarter of 2009, Canadian productivity grew a mere 1.4 per cent, while the U.S. surged ahead 6.9 per cent.

Producing less means earning less, and this hurts our standard of living. As long as those who bought what we produced could pay in 65 cent dollars, we only noticed how poor we were when we traveled out of the country. Now, with our dollar equal to the U.S.’s, our goods and services are more expensive to the rest of the world. We have trouble competing and lose export sales and jobs.

If we want a better life for ourselves and our children, we need to become more productive. But we don’t do that by toiling like slaves. Instead, we need the tools that enable us to generate more output for each hour worked. I’m referring to the machinery, equipment and technology that increase output without increasing effort.

A recent report from Statistics Canada shows we are moving in the wrong direction. Instead of helping us stay competitive by adding machinery and equipment, Canada had a record level drop in this kind of investment during the last recession. In the short run, this had a small benefit: Companies that were not spending on improving productivity could afford to keep more workers on and minimize unemployment.

HST will make it easier to become more productive

In the long run, not investing in the tools that will increase productivity is like not giving your child needed medical treatment because it will hurt. Less productive companies may end up with all their workers becoming unemployed as they lose their customers to more productive producers.

There are many things we can do to improve our economy and our job base. We can undertake research and apply new, innovative ideas. We can add human capital, training workers at all levels.

But the fastest and most immediate thing we can do is to apply more of the machinery, equipment and technology that already exists. By reducing the cost of investment for companies, the HST will make it easier for us to do this.

Troy Media BC’s Business columnist Roslyn Kunin is a consulting economist and speaker and can be reached at www.rkunin.com.

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