If elected, BC Liberal leader Andrew Wilkinson has pledged to eliminate the provincial sales tax, and maintain it at three per-cent in subsequent years until the province sees an economic rebounded from COVID-19. (Black Press Media files)

If elected, BC Liberal leader Andrew Wilkinson has pledged to eliminate the provincial sales tax, and maintain it at three per-cent in subsequent years until the province sees an economic rebounded from COVID-19. (Black Press Media files)

Column: Deep tax cuts come with a cost

In Plain View by Lachlan Labere

Campaign promises of large tax cuts are cause for concern, as history has shown they tend to come with a catch.

Wanting to give British Columbians a “chance to get ahead,” BC Liberal leader Andrew Wilkinson announced that if elected, he would cut the seven per-cent provincial sales tax (PST) for one year, and then bring it back at a reduced rate of three per-cent until the economy rebounds. The tax would still apply to cannabis, vaping products and luxury vehicles worth more than $125,000.

“Eliminating PST puts more money in people’s pockets, stimulates growth for struggling small business, and helps British Columbians who are struggling to get by,” said Wilkinson.

An interesting approach given the BC Liberals repeated criticism of the provincial deficit, which is projected to approach $13 million for the 2020-21 fiscal year.

Wilkinson acknowledged that the proposed cuts to the PST would cost the province around $7 billion in year one, and $4 billion annually while at three per cent.

Read more: B.C. VOTES 2020: Echoes of HST in B.C. debate over sales tax

Read more: Greens’ Furstenau fires at NDP, Liberals on pandemic recovery, sales tax promise

Wilkinson’s PST pledge prompted NDP leader John Horgan to comment that BC Liberal tax cuts, historically, have benefited the wealthy and well connected, “and not regular people.”

The provincial government, too, has struggled with deep tax cuts, at least according to former Shuswap MLA George Abbot, who served in numerous high-level positions in BC Liberal governments under Gordon Campbell and Christy Clark.

In his recently released book, Big Promises, Small Government, Abbott offers a critical view of the impact a 25 per cent tax cut, and subsequent cuts made by Campbell following his 2001 election win, had on the province, its ministries and residents.

According to Abbott, the decision to cut taxes, and exempt health and education (which amounted to 70 per-cent of the provincial budget) from any decrease in expenditures, left smaller ministries scrambling. Resource ministries suffered, as did social ministries, which Abbott says had a direct impact on their often vulnerable clients.

Wilkinson said his PST pledge would not result in cuts to government services, and estimated a family of four would save $1,700 in the first year.

However, according to Abbott, with large tax cuts a government and its electors must be leery of unintended consequences.

Certainly we have seen, through examples such as MSP premiums and ICBC, that what we save now in tax cuts will need to be paid somewhere down the road.

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