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The HST Facts vs Dan Lett, HST Defender

Oh for the good old days. You know, when you believed what you read in the newspapers because, well, if it wasn't true, they wouldn't print it, right?

Those were the days when you assumed reporters were "professionals" who researched their stories before writing them. Oh, and they had editors who made double sure everything was accurate and true. Right?

Then -- damn you Al Gore --- came the Internet.

And, suddenly, people could actually check the so-called "facts" in the newspaper for themselves. And, whoops, it appears the "professionals" were making up a whole lot of what they wrote, editors or no editors.

Enter Winnipeg Free Press columnist Dan Lett, who has taken to imagining himself a commentator on national issues.
His latest observations, headlined "Public's HST phobia needless" consisted of insulting people who opposed the blending of their provincial sales tax with the federal GST into one giant universal money-sucking tax.

"The debate over the HST is not intelligent or rational." he wrote. Got that? You anti-HST crusaders are stupid AND irrational.

To demonstrate his own smarts, Lett decided to give the fools a lesson in economics.
"And while there is short-term hit in the price of goods and services, ultimately it is believed prices will go down. A recent study by economists at the University of New Brunswick showed the introduction of the HST in Atlantic Canada in 1997 did result in savings for consumers."

snip

"The HST, a revenue-neutral tax that ultimately has the potential to save consumers money, doesn't really deserve to be on that list. An intelligent debate would have revealed that."

Oh yeah?

Maybe Lett should have actually read the "recent study by economists at the University of New Brunswick" before citing it to bolster his argument. It's not hard to find --- on the Internet. We found it and read it, along with a subsequent report from the C.D. Howe Institute.on the consumer effects of the HST.

Both studies tried to determine if the adoption of the HST in Newfoundland, New Brunswick and Nova Scotia in 1997 reduced costs to consumers.

Now, not being university eggheads, we would have answered the question the same way you would --- we would have asked our mothers.

Mom, did prices go up or down after they brought in the HST?
Simple, eh. Obviously too simple.

How would academics do it? For the answer we turn to the study:
The Effect of the Harmonized Sales Tax on Consumer Prices in Atlantic Canada
DAVID MURRELL AND WEIQIU YU
Department of Economics
University of New Brunswick
Fredericton, New Brunswick
"Turning to our forecast procedure, we use the pre- HST data and Holt-Winters’ double exponential smoothing method with additive seasonal adjustments for generating forecasts for the logarithmic transformation of CPI (i.e., dependent variable = LnCPI) for the HST period. We then follow a counter-factual procedure by comparing the estimated LnCPI (denoted by Ln CPI ), in the absence of the HST, to the actual LnCPI to derive the impact of the HST on consumer prices as measured by (LnCPI – Ln CPI ), for each of the HST-participating provinces."

Okay, have you got that, or do we have to repeat it?

So after the proper smoothing, adjusting, estimating and applying the proper counter-factual procedure, the professors reached a conclusion.

"...overall, consumer prices fell given the new HST regime."
Well, actually, "... the overall price fell somewhat."

And, umm----you're going to laugh---the data doesn't actually prove a direct connection between the HST and the drop in prices, said the experts.

You see, in accepting the HST, the Maritime provinces chopped their provincial sales taxes significantly. Newfoundland dropped theirs from 12 percent to 8. The other two provinces cut theirs from 11 percent to 8.

So, umm, the fall in consumer prices might actually be due to the CUT IN RETAIL SALES TAX and not the benefits of the HST being passed through to consumers.
"Our results, in other words, cannot immediately be extended to consumers in other provinces. The three participating provinces had the highest sales tax rates in the country, and reducing those high tax rates to 8 percent (along with changing the tax bases) ended up benefiting consumers."
So cutting taxes results in lower prices. YOUR MOTHERS COULD HAVE TOLD YOU THAT.
Except that they couldn't detect the falling prices. For that we had to turn to the July, 2007, report from the C.D. Howe Institute:
Lessons in Harmony:
What Experience in the Atlantic
Provinces Shows About the
Benefits of a Harmonized Sales Tax

Author Michael Smart concluded "...overall, CPI prices fell by about 0.3 percent in HST provinces after 1997, compared to the corresponding change in RST provinces."

Got it? Prices in the HST provinces after two years were a gi-montrous three quarters of one percent less than prices in the other provinces with their own sales taxes. Well, whoop dee doo.

"This difference" wrote Michael Smart, " is statistically insignificant..." You don't need a PhD to know that, brother.

So, if the upside of the HST is so tiny to be essentially irrelevant, is there a downside? The experts opinions ranged from 'uh, maybe', to 'Yessiree Bob'.

Professors Murrell and Yu said their analysis didn't examine that possibility, although they concluded:

"...it could be the case that certain income groups, in particular, low-income families, might do worse given the move to harmonize sales taxes."

Michael Smart, however, did the math.

"Particularly notable, perhaps, are the estimated 1.4 percent price increase for Shelter, reflecting the extension of the tax base to include purchases of new houses, and 1.5 percent price increase for Clothing and Footwear, which also likely reflects the broader base of the HST. Since expenditure shares for these categories tend to be larger for low-income households, this suggests the possibility that the reform was regressive in that it raised average prices for low-income households while lowering prices overall."

"Thus I conclude that the HST reform had a mild regressive effect."
Or, as our mothers would say,"The poor get screwed."

Or is that not intelligent or rational enough for "professional" journalists to understand?

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