Taxation and Harmonization in Ontario
How a New Blended Sales Tax Will Potentially Lead to Disharmony
Sep 8, 2009
In March 2009, Ontario's Finance Minister Dwight Duncan surprised recession-weary Ontarians with a new tax: the Harmonized Sales Tax (HST). The intent of this new tax is reported to help reduce costs and paperwork to businesses, eventually leading to lower prices for consumers. The HST is not a new tax for Canadians, as other provinces such as Newfoundland and Nova Scotia already have it in place. However, it is a new tax for residents of Ontario.
New Tax Inspired and Supported by the Federal Government
For the past year or two, Ontario has been moving into a "have not" status, which means for the first time last year, the Ontario Government qualified to receive equalization payments. Equalization payments are a way of ensuring that all provinces have roughly the same resources per population to deliver an array of mandatory and other services to its citizens. With equalization payments, the quality of health care and schools from one province to the next would be roughly the same, regardless of the economic state of each province at any given time. Ontario, together with Alberta and British Columbia, were traditionally the "have" provinces given the wealthy resource and manufacturing base that supported the provinces.
Therefore, provinces that have traditionally struggled such as the Atlantic Provinces and Quebec, would receive payments from resource-rich Ontario and Alberta to ensure that these provinces could also deliver services to its citizens on an equal par with those of the rest of Canada. The recession has changed this and with the substantial loss of manufacturing jobs, Ontario has now become a "have not" province, a status that federal Finance Minister Jim Flaherty wants to change.
To change this situation, Flaherty's Conservative Government in Ottawa handed Ontario over $4.3 billion to "implement" the new tax. Most of this money is to spent on providing individuals and families with three pay-outs, starting in July 2010 when the new tax is expected to be in place and ending the summer of 2011, just prior to the next provincial election. Families with a combined household income of less than $160,000 will receive a total of $1,000 in payouts, and individuals will receive a total of $300.
Move Marked as Cynical by Critics of the HST
This announcement was met with a flurry of criticism from both the provincial New Democrats and the Progressive Conservatives (despite the fact their federal cousins were the ones that pushed for this tax). Critics have called the proposed HST the "wrong tax for the wrong time", as this tax could lead to price hikes for almost all goods and services previously only subject to the federal Goods and Services Tax (GST). As Ontario's provincial sales tax currently sits at eight percent, this would mean an additional eight percent tax will be added to these prices. The fact that the $1000 benefit to offset the effect of this tax ends just before the next provincial election also brings poor optics.
Provincial Finance Minister Duncan has tried to sell the tax to Ontarians by stating that along with these changes, personal and corporate income taxes will be cut. Businesses will now be able to claim input credits from both the provincial sales tax as well as the federal GST as one tax, which would reduce reporting to one level of government and improve access to credits by businesses. In turn, argues Duncan, most businesses would pass on any savings to consumers.
Ontario is Not Buying the New Tax
Like any other tax, certain classes would benefit while others would be hurt. In this case, lower income and working class Canadians that have an income low enough not to pay significant provincial income taxes, but not low enough to qualify for full provincial tax credits, such as the proposed property tax credit, would feel the biggest bite on their disposable incomes. Seniors and persons with disabilities with very limited incomes will also be hurt by consequent price increases.
For many other Ontarians, the new HST will remind them of the much hated Goods and Services Tax (GST) when it was first introduced by then Prime Minister Brian Mulroney's government. Every time they purchase even a coffee from a Tim Horton's or fill their car tanks with gas, residents will be reminded of this very visible and much hated tax.
In response, many websites and petitions have been set up online for those opposed to this proposed tax to use and send to their Member of Provincial Parliament. There are many anti-HST sites set up on Face Book and other social networking sites as well. For more information about the HST and how it relates to the federal GST and what is being done about it in both Ontario and British Columbia (which is also introducing this tax at the same time as Ontario), visit this site.
