Referendum Questions: How much will the sales tax increase cost?

The Yes campaign says a typical family will pay $125 per year from the transit tax. The No side says it's $258. Who is right?

The Yes and No sides use very different estimates of what the extra 0.5 per cent Congestion Improvement Tax will cost the typical family.

The Mayors’ Council pegs the per household cost of the sales tax hike at an average of $125 per year based on statistics on spending patterns and how much the province now collects in PST from the region.

It says the increase works out to 35 cents a day, and the extra tax would be $3 on a $600 new sofa or $150 on a $30,000 car.

The No side’s Jordan Bateman rejects the $125 figure and estimates a real household cost of $258 a year.

His estimate – from simply dividing the $250 million to be raised each year by the number of households in the region – assumes every new tax dollar paid by businesses would be downloaded to their customers through higher prices.

That’s flawed, because some of the sales tax paid by Metro Vancouver businesses is on products exported elsewhere to be bought by customers who don’t live in the region.

Some is charged on business-to-business transactions.

A movie production company filming in the region, for example, will pay sales tax on what its crews buy, but it doesn’t have direct customers here who it can force to pay more.

Some retailers may even absorb the tax so their customers don’t pay more – car dealers say they may do that to ensure buyers don’t go to Fraser Valley dealers instead.

Businesses pay an estimated 45 per cent of the sales tax collected in Metro Vancouver and visitors pay another five per cent, leaving residents picking up the other half of the direct costs of the new tax.

Robin Lindsey, a transportation and logistics professor at UBC’s Sauder School of Business, said it’s likely some businesses will pass along the tax hike to residents through higher prices, increasing their indirect cost from the tax.

But he said it’s difficult to say which side’s estimate is the most accurate.

Another issue is how fairly the sales tax hike treats the rich and poor.

The mayors council estimates the poorest 20 per cent of households would pay less than $50 a year from the increase. That’s because a higher share of low-income household spending goes to necessities such as food, children’s clothes and medicine that are PST exempt.

All of the existing PST exemptions would apply to the Congestion Improvement Tax.

But, the No campaign says the poor would pay a much larger relative share of their income than wealthy households, making it a regressive tax compared to income tax, which low income earners typically do not pay at all.

“It is judged to be mildly regressive,” Lindsey said.

But he said that knock against the tax fails to take into account what the money would fund.

“It will go mainly to public transit, which is disproportionately used by lower income individuals and households,” Lindsey said. “That would be considered progressive.”

Referendum Questions is a Black Press series exploring issues related to the Metro Vancouver transit and transportation referendum. Voters must mail in ballots by May 29 on whether they support the addition of a 0.5 per cent sales tax in the region, called the Congestion Improvement Tax, to fund billions of dollars worth of upgrades. Follow the links below to read more in this series.