HST Referendum Results - Affect on Construction Industry

HST referendum voting results are in: 54.73% of respondents voted to extinguish the HST and return the GST/PST system. Click here to view the complete details of the vote. So where do we go from here? Many of you have heard that a transition period of 18 months is expected to return to the GST/PST system.

Understandably changing back to PST system has many challenges and an orderly process is required. Click here to get backgound information on the action plan to transition back to the old system. Also, finance experts have said B.C. will have to spend as much as $3 billion to revert to the old system.

So how will the abolishment of the HST affect the construction industry? Many experts believe this may significantly slow down the economy, especially new construction. Owners and buyers will delay purchases to save money on taxes, after all, why pay 12% in taxes when you can wait and pay 5%? This trend will be seen specifically in the construction of new homes.

The housing-market outlook released by CMHC in late May indicated that construction starts for new homes in B.C.  would increase from 26,400 units in 2011 to 29,000 units in 2012. Just to give you some background construction starts for new homes were 34,321 in 2008, 16,077 in 2009 and 26,479 in 2010. Therefore, it is likely that these forecasts will not be met given the benefits of not beginning new construction until the HST system is removed.

The transition period has to be reduced as much as possible, otherwise the transition may have significant impact on the construction industry. The transition may have the following consequences:

• The number of jobs will be reduced due to slow down of new construction;
• Business expenses will increase as organizations change accounting systems again;
• The slow down in the economy will force organizations to become more competitive and result in several changes in work flows

So it looks like were headed for another downturn in new construction until the market stablizes after the transition period. How has your business been affected during this period of tax uncertainty?