Why does B.C. continue to give property tax breaks for owners of million-dollar homes and waive the sales tax for high-end bicycles and restaurant meals? And who pays to make up the lost revenue?
You hear a lot about government spending going up or down, but politically popular tax breaks accumulate over the years with little discussion of their impact. As of last year, the combined cost to the B.C. treasury was more than $7 billion annually, Auditor General Carole Bellringer notes in a new report.
Economists call them “tax expenditures,” to emphasize that they are in effect spending programs. According to the current B.C. budget, the biggest one is the provincial sales tax exemption for food, which includes restaurant meals as well as grocery store food items. That is foregone revenue totalling $1.18 billion.
The only other province that exempts restaurant meals from sales tax is Alberta, which has no provincial sales tax.
B.C.’s second biggest tax break, budgeted at $809 million this year, is the B.C. Home Owners Grant. Introduced in 1957 by then-premier W.A.C. Bennett as a populist measure to relieve rising home prices, the grant has grown along with housing prices. The most recent adjustment to eligibility for the grant raised it to homes up to $1.65 million, up from $1.6 million.
The grant is more controversial this year because Premier John Horgan campaigned on a promise to provide a renters grant of $400 a year, arguing that renters should get a break as well as homeowners. But the renter rebate has not been delivered, because it is opposed by B.C. Green Party leader Andrew Weaver and he holds the balance of power in the minority provincial government.
Among the home owner grant critics is Simon Fraser University economist Marvin Shaffer, who has called it “a crassly political, poorly designed grant program” that goes to more than 90 per cent of homeowners via a complicated regional application system.
His fellow SFU economist Rhys Kesselman has argued for a “progressive annual property surtax on higher-value homes” that exempts homes below $1 million in value.
B.C. dropped the sales tax on the food portion of restaurant bills in 2013 when the harmonized sales tax was scrapped. All other provinces except Alberta, which has no sales tax, charge either HST or provincial sales tax on restaurant meals, with the highest being 15 per cent HST in Nova Scotia.
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Bellringer isn’t recommending changes to the home owners grant or other tax expenditures. Instead she suggests that after 25 years, reporting of these policies should be improved to better show their effects on the economy.
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