Tax Harmonization Needs Further Study
Aug 20, 2009
harmonization, hst, ottawa, pst
Recently, Manitoba Finance Minister Greg Selinger indicated that Manitoba would be studying Ottawa’s offer of tax harmonization. More specifically, to blend the General Sales Tax and Provincial Sales Tax into one Harmonized Sales Tax (HST). Following the lead of other provinces such as BC and Ontario, Selinger and others are likely concerned that Manitoba will lose out on Federal financial incentives if they do not make the shift to an HST.
The benefits of tax harmonization are only clear as relates to the business community. Harmonization is a good deal for them because efficiencies are realized in only having to collect and remit a single tax. Therefore, the cost of business is supposed to be reduced, although nobody has any idea by just how much. Some go so far as to argue that these savings will be passed along to the consumer, in which case it becomes a “win-win” situation for all.
But it’s important to scrutinize tax harmonization carefully because of the possible effect it will have on the consumer. And that’s a lot more difficult to do. It’s not easy to estimate how much the change would cost Manitobans. According to the Canadian Centre for Policy Alternatives (CCPA) and the Winnipeg Free Press, Nova Scotians paid $84 million more in tax the first year harmonization was implemented. And the Ontario Chamber of Commerce has estimated that this would cost Ontario $905 million. But will prices come down a concurrent amount?
The Free Press has estimated that an HST would increase sales tax revenue by $160 million per year. Some argue that this revenue could be used to reinvest monies into municipalities, which are in dire need of them. But it remains less than certain that either the Province or Ottawa would be willing to hand over millions of dollars to cities.
One of the main issues that affects consumers directly is that the HST will not exempt items that were previously spared the PST. In Manitoba as well as a host of other provinces, such things as gasoline, new homes and books were not subject to the PST. It’s possible to provide point-of-sale rebates on these items, but once again whether this would be the case is far from clear.
Another consideration is whether it is a desirable policy move for Manitoba to cede its ability to set its own sales-tax policy. Governments of all political stripes and of all levels often do not see eye to eye, so it’s not hard to imagine a butting of heads over competing tax policy interests.
It is possible that tax harmonization is a worthwhile endeavour. It is for business. But it’s much more uncertain for everyone else. And for that reason alone Manitoba needs to take a long hard look at Ottawa’s offer before it decides to make a decision it would be very hard to undo.
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Sounds like yet another bad deal for the consumer and another big win for businesses. And don't think for a second that retailers are going to lower their prices to reflect the lower costs of doing business. That's going to hit a lot of Manitobans harder than they think. Just imagine how much more money people will be spending on new homes.
Jerry - 2009-08-25 11:47