VICTORIA — British Columbia will have five years to return $1.6 billion the federal government gave the province to move to the harmonized sales tax, B.C. Finance Minister Kevin Falcon announced Wednesday.

Calling the agreement "fair and reasonable," Falcon said the province will owe Ottawa $320 million each year for the next five years, adding the federal government will charge no interest on any of the money.

"I think we have negotiated the best possible agreement for taxpayers, and I think taxpayers can be happy that we've had a prime minister and a (federal) minister of finance that have been willing, through a difficult negotiation, to come to an agreement that is fair for both parties," he said.

The province began negotiations with Ottawa this past August, after the HST was defeated in a provincewide referendum. The provincial government promised at that time to reinstate a PST and GST tax system by March 2013.

Falcon said the deal on repayment was finalized late Tuesday night, after months of complicated negotiations.

"I don't want to pretend this was an easy negotiation, and it was protracted because the impacts are significant for both sides and both sides have interests that they're working to protect," he said.

The deal will not significantly affect British Columbia's deficit projections, as the province is obliged to report the entire $1.6 billion loss in the current fiscal year. As of November, and with that $1.6 billion figure included, the province is projecting a $3.1 billion deficit for the 2011-12 fiscal year.

But Falcon said the new repayment deal will save the province approximately $118 million over five years because of the borrowing costs B.C. avoids by not having to come up with the entire amount right away.

"We are not required now to go and borrow the entire $1.6 billion this year. That means that we can spread that out over five years and have only to borrow $320 million this year, and an equivalent amount each year," he said.

"The result of that for British Columbia is that we avoid about $118 million in debt servicing costs over the term of the repayment, so I view that as a very positive outcome."

Falcon added that the original agreement his government signed was very clear on the terms of repayment, and therefore it would not have been possible to negotiate paying anything less than the full $1.6 billion.

"Although I could think of lots of ways that we could try and look to minimizing that repayment, the practical reality is we didn't have strong ethical or moral grounds to make that case," he said.

"But I think the final agreement we ended up coming to is one that the premier is satisfied with, I'm satisfied with and I think most British Columbians would recognize is fair and reasonable."

B.C. New Democratic Party leader Adrian Dix said the government blocked itself from negotiating a partial repayment by signing a "lousy agreement" that offered no flexibility.

"They were so anxious, they had misled people on the deficit, misled people on the HST and they signed a bad agreement for British Columbia," Dix said Wednesday.

"The letter of the agreement is a bad agreement, that the (BC) Liberal Party is responsible for . . . and so we're dealing with the consequences of a disastrous public policy initiative by the Campbell-Clark government."