The plan would see Ontario shift to a tax system that charges a combined 13% tax (8% Provincial, 5% federal sales tax) instead of separately charging them. Ontario has been pressured by the federal government to do this for years, but various governments have refused. Recently Premier Dalton McGuinty has confirmed officials in his government were having high-level talks with federal government officials on how to ease the transition.
Business, Political Opposition to Tax Harmonization
The idea faces a fight from opposition from business groups and opposition parties within the legislature. New Democratic Party (NDP) leader Andrea Horwath called the idea a tax grab, saying in remarks published in the Toronto Star the combined tax would rip taxpayers off: “I call it a tax grab that will nickel and dime families that are already feeling a squeeze.” Horwath added that a basket of goods, which today would cost $93.09, would increase to $100.18 under the proposed plan.
The Progressive Conservatives (PC) added their voice. Interim PC Leader Bob Runciman remarked in the same article his party would have serious problems with harmonization under the current economic circumstances: “Give the economic challenges, the job losses, the communities suffering, families suffering today, we would have serious difficulty bringing in new taxes that are going to further damage and make it more difficult for so many families.”
Federal Finance Minister Jim Flaherty served in the same portfolio under Premier Mike Harris, refused to bring in the changes. Earlier this year, he began pressing for harmonization, arguing it would stimulate Ontario’s economy.
Opposition in the business community comes from the Ontario Homebuilders Association. Currently new home purchases are exempt from PST (Provincial Sales Tax) charges. They estimate tax harmonization would increase costs by 8%. They feel this increase will force some buyers to hesitate. In comments published by the Windsor Star, Windsor Homebuilders Association’s Executive Officer Mike Dinchik mentioned it would also damage construction and renovation: “It certainly would be very detrimental to new home construction and renovation.”
Adding their voice to the opposition is the Investment Fund Institute of Canada (IFIC). The tax harmonization would double taxes paid on investments from 5% to 13%. It’s estimated this could cost someone who has saved $20,000 an additional $60/year.
The Ontario Chamber Of Commerce backs the move. They argue it will save businesses up to $100 million/year.
Tax Harmonization's Political Cost To McGuinty
Premier McGuinty has no fear of paying a political price for tax harmonization. He realizes raising taxes in a recession is unpopular, but is insistent that it has to be done. In comments printed in the Toronto Star he says Ontarians expect his government to do the right thing, and he’ll be able to justify his actions: “If you do what’s right, and you’re able to communicate that to people, that’s also good politics.”
This isn’t the first tough decision McGuinty has had to make as Premier. In 2004, his government introduced the controversial Healthcare Premium- an annual fee Ontarians paid of up to $900 for healthcare.
Quebec, Nova Scotia, Newfoundland and New Brunswick all have combined their sales taxes. The provincial Liberal government of Nova Scotia was voted out of office two years after it harmonized the sales taxes.
Ontario’s Finance Minister Dwight Duncan unveils his budget in late March.
