The HST Revisited
Dec 22, 2009
harmonized, low-income, ontario, summit
While Manitoba has so far decided not to be one of the provinces introducing a Harmonized Sales Tax (HST), others are moving forward. Ontario is the latest to opt in to the Federal Government’s initiative.
As of July 1, 2010, Ontario will join three Atlantic provinces and Quebec in combining its provincial and federal sales taxes into one HST. British Columbia will also be going down this path at a date that has yet to be determined.
The Manitoba Government has decided that the costs of shifting to an HST would outweigh the potential benefits. It has estimated that harmonizing Manitoba’s seven percent sales tax with the five percent GST would cost consumers an additional $400 million per year. That would happen because many goods and services on which consumers don’t pay provincial sales tax - such as fuel, haircuts, books, taxis, and parking – would be taxed at the new 12 percent HST rate.
In Ontario’s case, although the new tax will extend to services that were normally exempt from PST, they have announced that there would be new property and sales tax credits designed to offset the increased cost to consumers.
When the notion of an HST was first broached a few years ago, initial responses from many observers were negative. Since lower-income households spend a larger proportion of their income on taxable goods and services than do higher-income ones, sales taxes in general are regressive. The effective rate of tax goes down as income increases. On its own, then, the HST transfers resources away from low-income households. And it is doing this at the worst possible time, when Canada is at the tail-end of a recession.
However, a recent publication from the Canadian Centre for Policy Alternatives (CCPA) provides a surprisingly different view. Initially the CCPA was one of those groups concerned about the effect of an HST on lower-income Canadians. But their new study, “Not a Tax Grab After All: a Second Look at Ontario’s HST” finds that the measures proposed by the Ontario government to offset any inequality in the application of the HST are indeed effective. It concludes by stating that the HST system designed by the Ontario government will sufficiently protect the interests of the poor.
We’ve known from the onset that an HST is beneficial to business since it amalgamates various levels of taxes and therefore streamlines the process of tax remittance, resulting in time and money saved. But now, given that governments are starting to examine ways to ensure that such a system be applied to consumers and citizens in a fair and equitable manner, perhaps it is worthy of further serious consideration and contemplation.
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