A Critique and Analysis of British Columbia’s Proposed PST Expansion
Prepared for: Members of the Legislative Assembly, British Columbia
Date: March 2026
Budget 2026, tabled by Finance Minister Brenda Bailey on February 17, 2026, proposes a significant expansion of British Columbia’s Provincial Sales Tax (PST) to a range of professional services previously exempt from taxation. Effective October 1, 2026, PST at 7% will apply to accounting, bookkeeping, architectural, engineering, geoscience, security, private investigation, and non-residential real estate services. This expansion is projected to generate approximately $1.4 billion in new revenue over three years, ostensibly to help address the province’s record $13.3 billion deficit for 2026–27.[1][2][3][4][5]
This submission respectfully but firmly argues that the proposed PST expansion is economically counterproductive, structurally flawed, poorly timed, and fundamentally at odds with the province’s stated goals of housing affordability, economic growth, and investment attraction. It was introduced without meaningful pre-budget consultation with the business community, and it deepens the very structural deficiencies of the PST that economists, tax policy researchers, and business leaders have warned about for over a decade.[6]
We urge every Member of the Legislative Assembly to carefully consider the evidence presented here and to oppose this measure. This is not a partisan argument. It is a matter of fiscal common sense and sound economic stewardship.
What the PST Expansion Entails
Under the proposed amendments to the Provincial Sales Tax Act, effective October 1, 2026, the following professional services will become subject to 7% PST:[5]
- Accounting services, including bookkeeping and assurance services
- Architectural services
- Engineering and geoscience services
- Security services, including private investigation services
- Non-residential real estate services, including trading services, rental property management services, and strata management services
Architectural, engineering, and geoscience (AEG) services will be subject to a partial taxable base—PST will apply to 30% of the purchase price, resulting in an effective rate of approximately 2.1%.[3][7]
Additionally, Budget 2026 eliminates longstanding PST exemptions on:[8]
- Clothing patterns, yarn, natural fibres, synthetic thread, and fabrics commonly used in making or repairing clothing
- Services related to clothing and footwear (excluding basic laundry services)
- Basic cable television services, toll-free telephone services, and residential landline telephone services
The government projects these combined changes will increase revenue by $284 million in 2026/27, $578 million in 2027/28, and $606 million in 2028/29—approximately $1.4 billion over the three-year fiscal plan.[2][1]
The Government’s Stated Rationale
The provincial government has offered two primary justifications for this expansion. First, it claims the changes will “modernize” the PST and align it with practices in other provinces. Second, the revenue generated is intended to narrow the gap in the province’s structural deficit.[1][2]
Both justifications deserve scrutiny.
The “Alignment” Argument Is Incomplete
The government correctly notes that Saskatchewan and Manitoba already apply their provincial sales taxes to some professional services. Saskatchewan, for instance, taxes engineering and architectural services at an effective rate calculated on 30% of the purchase price, and has taxed accounting, legal, and other professional services since 2000. Manitoba applies its 7% retail sales tax to a range of goods and services.[9][10]
However, this comparison conveniently omits the provinces that represent British Columbia’s most direct competitors for labour and investment. Alberta levies no provincial sales tax at all—zero percent—and actively markets this advantage to attract businesses and workers. Ontario and Quebec use Harmonized Sales Tax (HST) and Quebec Sales Tax (QST) systems respectively, which are value-added taxes that provide input tax credits, meaning businesses can recover the sales tax they pay on their operational inputs. This is a critical distinction.[11][12][13][14]
In other words, comparing British Columbia to Saskatchewan and Manitoba while ignoring Alberta, Ontario, and Quebec presents a distorted picture. The real competitive pressure facing British Columbia is not from Saskatoon—it is from Calgary, Edmonton, Toronto, and Montreal, all jurisdictions where business inputs are either untaxed or refundable.
Revenue Generation Does Not Address the Spending Problem
The $1.4 billion in projected revenue from the PST expansion over three years is dwarfed by a projected deficit of $13.3 billion in 2026/27 alone. It represents roughly 3.5% of the projected deficit for a single fiscal year. As the Greater Vancouver Board of Trade bluntly stated, the provincial government “does not have a revenue problem—it has a spending problem”. The Independent Contractors and Businesses Association (ICBA) has documented that total provincial debt has more than doubled since 2018 and is projected to increase by a further $55 billion between 2025/26 and 2027/28. RBC Economics notes there is “no path to balance” proposed in the budget, and the debt-to-GDP ratio will continue to rise across the entire forecast period.[4][15][16][17]
Raising taxes by $1.4 billion while running deficits exceeding $12 billion per year is not fiscal discipline. It is the appearance of action without the substance of reform.
The “Tax on a Tax” Problem: Why the PST Is Structurally Inferior
This is not merely an objection to one budget measure. It reflects a deeper structural problem with British Columbia’s tax system that the PST expansion makes worse.
Unlike the GST/HST system, which is a value-added tax (VAT) where businesses receive input tax credits for tax paid on their purchases, British Columbia’s PST is a retail sales tax that provides no such mechanism for businesses. When a business pays PST on a professional service—say, an engineering fee for a construction project—that tax becomes embedded in the cost of the project. When the project’s output is sold to the next party, the embedded PST cost is taxed again, either under the PST or the GST.[14][11]
This is what economists call “tax cascading” or “tax pyramiding,” and it produces an effective tax rate on final consumers that is substantially higher than the nominal 7% rate. The C.D. Howe Institute has documented that provincial retail sales taxes in Canada are “remarkably high on business inputs” and that cascading through the production chain results in “more than proportional reductions in costs” when those embedded taxes are removed. The International Monetary Fund has noted that the economic loss from cascading “exceeds the revenue raised by the government,” a classic form of deadweight loss.[18][19][20][14]
This is not abstract theory. For a construction project in British Columbia, the PST paid on architectural and engineering fees becomes part of the project cost, which then forms the base upon which further costs (and taxes) are calculated. The Canadian Federation of Independent Business (CFIB) correctly characterizes this as a “tax on a tax”—every time a service is taxed during a project, that cost is baked in and then taxed again at the next stage.[11]
British Columbia’s Investment Tax Wedge Is Already the Worst in Canada
The Fraser Institute, drawing on the work of Bazel and Mintz at the University of Calgary School of Public Policy, has documented that British Columbia already has the highest marginal effective tax rate (METR) on all forms of investment of any province in Canada—25.6%, compared to 12.1% in Alberta, 15.1% in Ontario, and 11.5% in Quebec. The METR on machinery and equipment in British Columbia stands at 27.9%, compared to a Canadian average of just 8.4%. The PST is the single largest contributor to this tax wedge.[21]
Expanding the PST to additional professional services does not address this problem. It makes it worse by embedding additional tax costs into the very services—engineering, architecture, geoscience, accounting—that underpin productive investment, infrastructure development, and housing construction.
| Province | Aggregate METR (2020) | METR on Machinery & Equipment | PST Rate |
| British Columbia | 25.6% | 27.9% | 7% (cascading) |
| Alberta | 12.1% | 6.3% | 0% |
| Ontario | 15.1% | 5.7% | 8% (HST, refundable) |
| Quebec | 11.5% | –5.0% | 9.975% (QST, refundable) |
| Saskatchewan | 20.6% | 21.5% | 6% (cascading) |
| Manitoba | 21.0% | 22.9% | 7% (cascading) |
Source: Bazel and Mintz, 2020, via Fraser Institute[21]
The numbers speak plainly. British Columbia is not merely uncompetitive—it occupies the worst position in the country, and it is about to worsen it.
Impact on Housing Affordability and Construction
The provincial government has repeatedly stated its commitment to accelerating housing construction and improving affordability. The PST expansion directly contradicts that commitment.
Every residential and commercial development project in British Columbia requires architectural, engineering, and geoscience services. Adding PST to these services increases the soft costs of development, which are a significant and growing share of total project costs. One industry analysis examined a 91-unit co-op project in Vancouver where the design component totalled $1.88 million. With an estimated 75% of those fees now subject to PST, the additional tax burden flows through the project pro forma, increasing financing costs and ultimately the price per unit.[22]
The Union of British Columbia Municipalities (UBCM) has acknowledged that the PST expansion will increase costs for local governments that rely on these professional services, and that “some in the development and real estate sectors have raised concerns about the changes, which they say will significantly increase the costs of housing delivery, and ultimately impact affordability for homebuyers”.[2]
This is not hypothetical. Market conditions are already deteriorating. Pre-sale absorption rates have declined sharply. Unsold condominium inventory sits at multi-year highs. Metro Vancouver’s rental vacancy rate has risen to approximately 3.7%—the highest in decades. Municipal planning departments report thinner application pipelines. Housing projects are being shelved and cancelled across the province.[22][11]
Adding a new tax to the professional services required to design, engineer, manage, and sell housing at precisely the moment the market is turning downward is not modernization. It is counterproductive policy that will reduce housing starts and drive up the cost of whatever housing does get built.
Small businesses make up 98% of all businesses in British Columbia and employ over one million people. The PST expansion hits them disproportionately hard for several reasons.[15]
A CFIB flash survey of 439 British Columbia business owners conducted in February 2026 found:[23]
- 80% of businesses oppose expanding the 7% PST to professional services
- 72% say they will likely pass on some or all new PST costs to customers
- 88% report negative impact from the PST on accounting and bookkeeping services specifically
- 93% say Budget 2026 will not improve conditions for their business
- 91% are not confident the province can reduce its deficit in the coming years
Thousands of professional service providers who have never before collected PST will now be required to register for, charge, remit, and report a tax under an entirely different system from the GST, with different rules, different filing deadlines, and different exemptions. The CFIB estimates that the administrative cost of PST compliance can run as high as $7,000 per year per employee. For small accounting firms, engineering consultancies, and security companies, this is not a trivial burden—it is a significant new cost of doing business layered on top of the tax itself.[11]
The expansion of PST to security services is particularly tone-deaf given the well-documented concerns about public safety and crime affecting small businesses across British Columbia. Restaurants, retail shops, and cafes are already spending significant sums on private security. One small business owner cited costs of $300 per day for security guards, noting, “You need to sell a lot of coffee to pay for that”. Adding 7% PST to those costs while simultaneously claiming to invest in public safety sends, as one board of trade CEO put it, “mixed signals”.[15]
Impact on the Mining, Resource, and Industrial Sectors
Mining and resource companies, which operate in capital-intensive environments requiring extensive engineering and geoscience work, will face substantial new costs. The Mining Association of British Columbia has called the PST expansion “one step forward, two steps back”. One mining company estimates the new tax will add approximately $1.3 million to project costs over several years, while another operator calculated an additional $3.7 million annually on a $155 million services spend.[15]
For companies in the exploration phase with no revenue, these costs are not absorbed from profits—they are diverted directly from technical work, job creation, and the capital investment that the province claims it wants to encourage. British Columbia’s mining sector competes globally for investment. Adding costs that Alberta, Ontario, and Quebec do not impose makes the province a less attractive place to explore and develop mineral resources.
Interprovincial Competitiveness and Talent Flight
The PST expansion does not occur in a vacuum. It lands in an environment where British Columbia is already losing residents, particularly working-age adults, to other provinces at historically unprecedented rates.
Statistics Canada data shows that British Columbia was the sole province to experience a population decline in the second quarter of 2025. Net interprovincial migration has been negative by 5,000 to 9,000 people per year since 2023—a magnitude not seen in 25 years. Nearly 70,000 residents left the province for other parts of Canada over the past year, a record. Alberta alone attracted over 35,000 British Columbians, an all-time high.[24][25][26]
Critically, 77% of those leaving British Columbia are under 40 years of age. These are the workers, entrepreneurs, professionals, and young families that the province needs to sustain its tax base, its healthcare system, and its economic dynamism.[26]
As CFIB’s B.C. legislative director noted, the idea of moving to Alberta or Washington State “started as a clever joke at the pub, maybe a couple of years ago, for some people, but these jokes are turning into reality”. When the province’s response to an affordability crisis and a competitiveness gap is to raise taxes on the professional services that every business relies on, the incentives to leave only strengthen.[15]
The Total Tax Burden in Context
The PST expansion must be understood as part of a broader pattern of tax increases in Budget 2026. In total, the budget introduces more than $4.2 billion in new taxes on businesses and workers over three years. This includes:[27][11]
- Personal income tax increase: The lowest bracket rate rises from 5.06% to 5.60%, affecting approximately 60% of taxpayers[28][27]
- Tax bracket freeze: Personal income tax brackets and non-refundable tax credits frozen from 2027 to 2030, meaning inflation will push taxpayers into higher effective rates without any legislative action[29]
- Speculation and Vacancy Tax increase: Rate rising to 4% for foreign owners and untaxed worldwide earners effective 2027[4]
- School property tax increases: Higher Additional School Tax rates on development properties[22]
- PST expansion: As detailed in this submission
Meanwhile, British Columbia’s combined top marginal personal income tax rate already stands at 53.50% on salary and interest income. The province is not a low-tax jurisdiction by any measure.[30]
The Broader Fiscal Picture: Spending, Not Revenue
British Columbia does not face a revenue shortage. Government revenue is forecast at $85.5 billion in 2026/27, growing to $91.8 billion by 2028/29. The deficit exists because expenses are forecast at $98.8 billion in 2026/27, rising to $103.2 billion by 2028/29.[31]
Provincial debt is approaching $155 billion and is projected to reach $189 billion over the fiscal plan period. The debt-to-GDP ratio is forecast to reach 30.6% in 2026/27, 34.4% in 2027/28, and 37.4% in 2028/29—a dramatic deterioration from pre-pandemic norms in the mid-teens. TD Economics describes the trajectory as a “clear upward shift from pre-pandemic norms”. The ICBA characterizes it as “evidence of extraordinary fiscal recklessness”.[16][32][31]
The structural deficit—estimated at $12 to $13 billion per year—is not a cyclical problem that will resolve with stronger economic growth. It is a chronic gap between expenditures and revenues that demands expenditure discipline, not the layering of economically harmful taxes onto productive sectors of the economy.[16]
What Tax Policy Scholarship Says
The economic arguments against cascading retail sales taxes on business inputs are not new, nor are they disputed in any serious way within the tax policy literature.
- The C.D. Howe Institute has published extensively on the inefficiency of provincial retail sales taxes and the benefits of harmonization, documenting that “taxes on capital are especially undesirable because they have long-lasting effects on the economy”.[14]
- The Fraser Institute has estimated that eliminating the PST on machinery and equipment alone would increase the per-worker capital stock by 6.5%, boost labour productivity, and raise average annual worker incomes by $700 to $1,700.[33][21]
- The OECD has called for Canada to reform its provincial retail sales taxes, noting that they “penalise business inputs” and prevent base broadening and deeper statutory rate cuts.[34]
- The Diamond-Mirrlees Production Efficiency Theorem, a foundational result in public finance, establishes that taxes on intermediate business inputs are not part of an optimal tax system—a principle that the PST expansion directly violates.[35][14]
- The International Monetary Fund has documented that the deadweight loss from tax cascading exceeds the revenue collected.[20]
Every major institution that has studied this question has reached the same conclusion: taxing business inputs through a retail sales tax is economically inferior to a value-added approach. The direction of reform should be toward eliminating input taxation, not expanding it.
We respectfully urge Members of the Legislative Assembly to:
- Oppose the PST expansion on professional services. The measure is economically counterproductive, poorly timed, and will harm housing affordability, small business viability, and investment competitiveness.
- Demand meaningful expenditure reform. The province’s fiscal crisis is a spending crisis. Running deficits exceeding $12 billion per year while layering new taxes onto productive sectors is not a path to fiscal health.
- Commission an independent review of the PST’s structural impact on investment and competitiveness. British Columbia’s 2016 Commission on Tax Competitiveness recommended moving toward a value-added system. That recommendation has been ignored for a decade. It is time to revisit it seriously.
- Engage the business community in pre-budget consultation before introducing measures of this magnitude. The Greater Vancouver Board of Trade has confirmed that the PST expansion was never discussed during pre-budget consultations. That is not how responsible policy is made.[6]
- Explore structural tax reform rather than base expansion of a flawed system. Whether through a made-in-BC value-added tax, targeted PST reform to exempt business inputs, or a refundable investment tax credit to offset PST on capital expenditures, there are alternatives that raise revenue without compounding the structural deficiencies of the current system.
British Columbia stands at a crossroads. The province is hemorrhaging working-age residents. Housing construction is slowing. Business confidence is eroding. Debt is spiralling. And into this environment, the government proposes to expand a tax that every serious analysis has identified as the single greatest disincentive to investment in the province.
The $1.4 billion this measure is expected to raise over three years will not meaningfully reduce a $36 billion cumulative deficit. But it will meaningfully increase the cost of building homes, running small businesses, developing natural resources, and providing the professional services that underpin a modern economy.
We ask only that you weigh the evidence, consider the consequences, and act in the long-term economic interest of the people you serve.
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