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July 14, 2010

McGuinty's HST, dollars and nonsense

On Canada Day, Ontario and British Columbia joined Nova Scotia, Newfoundland, and New Brunswick as provinces that have accepted the Harmonized Sales Tax (HST).

The HST combines the federal Goods and Services Tax (GST) and Provincial Sales Taxes (PST) into a single sales tax. For Ontario and B.C., that comes to 13% and 12% respectively.

The reasons for harmonization are threefold:

• To increase investment in provincial businesses, thus making them more competitive;

• To create more jobs, and

• To eliminate hidden taxes found throughout operational costs.

Adopting the HST also means that products that were exempt from the PST will now carry a 7% or 8% “PST” under harmonization, although some products will be exempt. This process of exemption/inclusion, however, is highly arbitrary.

Reactions to the HST have been mixed at best.

The provincial NDP has roundly condemned it as a tax grab that will help provinces raise up to $3.5 billion in additional revenue.

Public opinion in both Ontario and B.C. has been vastly negative, with estimates of 90% of people in both provinces against the tax.

The more conservative-minded CD Howe Institute has long advocated an HST for the aforementioned reasons. The institute claims the HST will not harm average households because it is revenue neutral, but the Canadian Centre for Policy Alternatives, which has done extensive research on the HST and its effects, contradicts this claim.

Marc Lee, a senior economist with the CCPA–B.C. says the tax will hurt modest- to middle-income households, even though it may benefit some of Canada’s poorest citizens: “The B.C. government is proposing an HST credit of a maximum $230 for individuals with income up to $20,000, and $230 per family member for families with incomes up to $25,000. [This means that] an individual with $20,000 or less in income would have to spend more than $3,285 per year on the previously exempt goods and services… in order to be worse off.”

Lee also said more revenue from the HST could reach low- and middle-income households if the credit thresholds were increased, and then phased more slowly as incomes rose.

Moreover, he said claims of increased jobs and business competitiveness from the HST are greatly exaggerated. Promises of lower operating costs do not entice businesses to invest—future estimations of profits and sales do—so the HST will have no effect on any company in B.C. looking to cut costs or lay off workers.

What Canada intends to do with the revenues raised by the HST is still largely opaque, but in Scandinavia the HST is put to progressive uses like funding communal infrastructure and social welfare.

Steven Zhou is a student at the University of Toronto.

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