A lot is being made of the Ontario government’s recent decision to combine the provincial sales tax with the federal GST to create a blended sales tax (BST). Taxpayers and consumers have good reason to be concerned with the prospect of another 8% being added to the costs of many services in Ontario. While it might be a good idea in principle, now is the wrong time to impose the BST and Mr. McGuinty is going about it the wrong way.
To understand consumer backlash over the BST one must recognize the political and economic climate into which it is being introduced. Appreciating this makes it easier to understand why Ontarions simply don’t believe the Premier when he tells them the BST will be good for them.
First, the politics are bad. Mr. McGuinty has a terrible track record on taxes. He has promised not once but twice, without ambiguity, that he would not raise taxes. Taxpayers are understandably wary because, it has turned out, Mr. McGuinty has repeatedly lied to them.
After his first ‘no new taxes’ election campaign promise, he proceeded to hike business taxes and impose a new so-called ‘health tax’ - the single largest tax hike in Ontario history. As well, he gave new taxing powers to the City of Toronto. Since his second election campaign, which also featured another ‘no new taxes’ promise, he has put in place a paint tax, an electronics tax and a new tire tax. As well, his Green Energy Act has a new energy tax and a home-sale-audit fee. And there’s more, the recently tabled budget raises taxes for the top two tax brackets by lowering the threshold on which they apply, amounting to a large tax grab from the middle class.
The theory behind the new BST, as argued by the Ontario Chamber of Commerce, is that businesses will enjoy reduced net taxes on many key inputs. Further, that the BST will attract new businesses to Ontario and allow for reduced prices for goods sold. As well, businesses will see lower costs for tax compliance.
There are a few problems with this. Many of the goods sold in Ontario are for export and the price reduction, if it exists at all, won’t be enjoyed in Ontario but by external markets. As well, a CD Howe report indicates that there will be a negative GDP impact for years before it turns positive. Even the Chamber of Commerce report indicates consumers likely won’t see costs fully reduced for at least three years.
The economy is still struggling; people are worried about their jobs and are spending less. Now is the wrong time to add 8% to the costs of gasoline; diesel; propane; home heating fuel; home electricity; natural gas; home TV service; home internet service; home phone service; cell phone charges; hair cuts; lawyers’ fees; accountants fees’; mechanics’ fees; ballet lessons; rink rental fees; tailoring; magazine subscriptions; mutual fund fees; massage; chiropractic; audiology; train fares; plane fares; taxi fares; bus fares; vitamins; dry-cleaning; grass cutting; snow removal; camping fees; firewood; meals under $4; new homes over $500,000; gym fees; home renovation labour; and real Christmas trees.
These newly taxed services will importantly increase the cost of living for individuals and families in Ontario. Mr. McGuinty will pay families $1,000 to offset the new costs. There will also be a new low-income tax credit created. The ‘McGuinty Bucks’ $1,000 cash is one-time, likely won’t cover the tax hikes and appears politically motivated with cheques set to arrive just prior to the next election.
When most of Atlantic Canada harmonized their sales taxes they reduced the rate Mr. McGuinty is not offering this. An even more meaningful approach to offsetting the pain, instead of McGuinty Bucks, would be to raise the basic personal tax exemption high enough to offset the cost increases. This way the new tax would be cost neutral overall for the most people. Instead, Mr. McGuinty’s approach to implementation has been to provide modest relief for the poorest, while punishing those in middle and upper income brackets the most.
It can’t be denied there are a handful of benefits associated with harmonizing the PST with the GST. Yet, by hitting families in their pocketbook while only attempting to off-set the tax grab with a one-time cheque, this approach to imposing the BST will damage individuals and families when they can least afford it. There are other ways to reduce taxes for business that don’t harm individuals and families. Those changes should be undertaken first. That is why some are referring to the BST and the new BS Tax.
