01/11/2012 12:57 EST | Updated 03/12/2012 05:12 EDT

BC HST: Federal Government Gives Province 5 Years To Repay $1.6 Billion


VANCOUVER - Taxpayers in British Columbia will have to pay back all of the $1.6 billion the federal government paid to the province in HST transition money — but they're getting a break on interest.

B.C. Finance Minister Kevin Falcon told reporters Wednesday it was the best deal his government could work out in a "difficult negotiation process" with Ottawa.

"Obviously, in a perfect world, I wish we didn't have to pay back anything," the minister said.

"But the referendum decision was clear and the direction was clear to the government of B.C. and we're obviously following through in that direction."

The minister said the money will be paid back over five years and the province saves about $118 million by avoiding interest payments.

Falcon's New Democrat opposition critic Bruce Ralston said the whole harmonized sales tax agreement with the federal government was a bad deal, but he conceded that the provincial government had no option but to pay back the cash.

Bill Vander Zalm, the man who lead the charge to throw out the HST, called the outcome a "disaster" and said the province should have taken a much tougher stand.

"It's just not been a good deal. I get upset when I think about this," he said, without his usual enthusiasm.

The charismatic former premier of the B.C. was the chief spokesman for the group Fight-HST, which spearheaded the referendum where British Columbians rejected the tax in favour of going back to the divided goods and services tax and provincial sales tax.

Vander Zalm said he thought provincial negotiators would have taken into consideration that the HST would have been in place for three of the five-year agreement. He said they also should have considered that the federal government will have collected about $1 billion dollars in extra tax money.

"They didn't seem to consider any of that. They gave the ship away."

With that math, Vander Zalm believes the province should have paid just 40 per cent of the $1.6 billion back to the federal government.

But Falcon said the agreement was fair on both sides because the federal government gets repaid in full and the province is spared interest costs.

"I think what we've landed at is something that I can truly say is a fair deal," he said.

"But what we're trying to do is minimize the financial impact to the province, and today's agreement does that."

And while the province will pay back about $320 million for each of the next five years, the entire amount will be placed in the debt column of the 2011-20012 fiscal year. The minister said that was in accordance with generally-accepted accounting principles.

It means this year's deficit will be just over $3 billion dollars, he said.

Falcon would not say if tax increases or program cuts were in the works to help the government towards its goal of balancing the budget in 2013-2014.

The HST agreement does clear one of the biggest hurdles to bringing back the two tax system by March 2013, Falcon said.

He said there were no plans to accelerate the changeover.

B.C. Chamber of Commerce president John Winter said the act of waiving the interest rate by the federal government may not save a whole lot of money, but it shows the federal government is interested in helping the province out of a financial bind.

"This is a significant blow to the province's plans to balance its budget and it should come as no surprise to anybody that this would be the outcome if the vote went against the HST."

He too wondered why the province didn't get credit for the three years the HST was in effect.

"Perhaps that's the interest credit, I don't know," he added.

Ralston said he believes the federal government waived the interest rates as recognition of the role it played in bringing the HST into B.C.

"Although they deny that they were part of it, it was part of their program. So that's some acknowledgment of the federal government of its part in this deal."

Falcon revealed little of what when on during the talks.

"There was a lot of horse trading, it's why it was a difficult negotiation."

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