Duane Hicks
Peggy Revell
Local and visiting politicians were out in full force both defending and attacking plans by the provincial government to implement the Harmonized Sales Tax, which will come into effect next July 1.
At the fall meeting of the Northwestern Ontario Associated Chambers of Commerce here last week, Revenue minister John Wilkinson outlined why the McGuinty government is pursuing this major tax reform—to stimulate the economy, make businesses more competitive, and create jobs.
“We are introducing the biggest and most comprehensive tax reform package in decades,” said Wilkinson, who is the MPP for Perth-Wellington.
“One of our most important goals is to help Ontario businesses become even more competitive so that they can produce more, export more, and, most importantly, create more jobs,” he added.
Wilkinson said the sales tax system Ontario has been using since 1961 is broke and needs to be fixed.
“Quite simply, the sales tax system we have is a hindrance to the economy that we’re moving towards,” he argued. “As the premier has repeatedly said, if we were going to create a taxation system from scratch, we sure would not create the one we have now.”
In almost all of the advanced economies of the world today, there is one tax—a value-added tax. And if a country wants to join the European Union (the largest trading bloc in the world), the price of admission to be considered is to have a national, value-added sales tax.
Wilkinson said there’s a movement across Canada to implement an HST, with Quebec, Nova Scotia, New Brunswick, and Newfoundland and Labrador already having done so.
“So, how has it worked out? A study by a U of T professor found that per capita investment in the three Atlantic provinces that adopted the HST rose by more than 11 percent in the year following implementation compared to all the other provinces, and investment in machinery and equipment increased by 12 percent,” Wilkinson noted.
“So is it any wonder that our sister province, British Columbia, has decided to follow our lead and introduce a harmonized sale tax on the day that we are,” he remarked.
“In the words of B.C. Finance minister Colin Hansen, ‘B.C. cannot afford to be left behind.’”
Wilkinson noted many boards of trade, including the Ontario Chamber of Commerce, have been calling on the province to implement an HST for years, adding the OCC said the proposed HST “will prove to be the biggest single stimulus for the Ontario economy.”
It even has launched a website to garner support for the HST.
As well, big companies like Telus have said the HST will take costs and double taxation out of business and make Ontario a more attractive and competitive place to do business, encouraging innovation and price reductions for both consumers and exports.
Wilkinson said the benefit of the HST to businesses is simple: A business charges GST to its customers, then sends it to the federal government minus what they have paid in GST to operate their business.
On other hand, businesses that charge PST collect it and send it in, with no credit as to the taxes that have been paid.
“It’s a tax on tax on a tax on a tax—there’s a hidden layer of tax there,” Wilkinson explained. “Every time somebody changes hands on the PST, we’re out there taking another eight percent.
“That’s built onto the price, and that gets taxed on eight percent again.”
Wilkinson said TD Economics has reported the current “double taxation” equals more than $5 billion a year. This “hidden layer” of tax hampers Ontario companies, which the consumer pays and doesn’t even know is there.
“That’s why we’ve decided to take this bold step,” he noted. “Everybody knows that one tax at one rate on one set of goods and services, administered by one set of paperwork payable to one level of government, with one set of civil servants, has got to cost a lot less than money for businesses and for government and for consumers than the current system we have now that was created in 1961.
“That shows we have two taxes at two different rates on differing sets of goods and services payable to two different governments with two different sets of paperwork and regulation with two different sets of civil servants administering it.”
Wilkinson said Ontario businesses will save half-a-billions dollars a year in lower compliance costs due to the decreased paperwork.
This savings, paired with the elimination of the “hidden tax,” will allow companies not only to survive, but improve productivity and lower prices.
Wilkinson stressed all the money raised by having a broadened sale tax base will be passed back to businesses and consumers by way of income tax reductions. For example, large businesses currently have a corporate rate of 14 percent.
Next July, it will be 12 percent. In 2013, it will be 10 percent.
For small businesses, the current rate of 5.5 percent will drop to 4.5 percent on July 1, 2010.
The province also will get rid of the small business surtax, which is applied to small companies that are doing especially well.
And there will be more than $10 billion in tax relief for consumers. The province will lower the tax rate on the first $37,000 of income, meaning 93 percent of Ontarians will pay less personal income tax starting in January.
This will mean Ontario will have the lowest personal income tax rate in Canada.
The new HST will mean more consumer products will be taxed than currently, but Wilkinson noted that in order to ensure those of “modest means” are not hurt most by the HST, each family member will get a one-time rebate of $260 in addition to the current GST rebate amount of $240 per year for an adult, and $140 for a child (this rebate will be split into cheques and issued in June, 2010, December, 2010, and June, 2011).
As well, the province will provide “targeted tax grants” for certain families (especially those with many children) while seniors will get double the property tax credit.
But the HST is of benefit to no one, charged Randy Hillier, the PC critic for labour, northern development, mines, and forestry, who also was attending NOACC’s fall meeting here.
“People have to recognize this is a new tax,” he argued. “It’s going to bring in about $2.5 billion more out your pockets, mine and everybody else’s, into government coffers.
“The reason why that is is because government is growing at a faster rate than inflation, GDP, and populations,” Hillier noted. “All those factors, and government is growing faster than that.
“We’ve gone from a $67-billion budget in 2004 to a $110-billion budget.
“Government is growing too fast,” Hillier complained. “They’ve hired 200,000 more provincially-paid employees in the last five years.
“We have got to get a handle on government growth,” he stressed. “We’ve got to rein it in and temper that monster it has become.”
Hillier noted “one of the really terrible things” about the HST memorandum that’s been signed is that “it goes against a democratic principle that one legislature should never handcuff a future legislature.”
“This memorandum absolutely does that,” he said. “It prevents any change in it to 2012.”
“One of the administrative advantages to a harmonized sales tax is called the input tax credits,” he added. “This is where people in business get a credit back on taxes that they paid.
“However, that will not be phased in totally for eight years.
“There’s a whole bunch of technical problems with it which are wrong, but it’s also the result of what is totally wrong with this government, and that is that it’s growing totally out of control,” he continued.
Hillier charged Liberal “red tape” has grown exponentially, with more laws requiring more enforcement, more bureaucracy, more agencies, boards, and commissions, and thus more tax revenues to support that.
“I don’t think anybody benefits from it,” he remarked. “When the government takes more money out your pocket, nobody benefits. That’s the bottom line—it harms you, the stores you would go to.
“Government is taking away people’s choice of where they can spend their money.”
Thunder Bay-Rainy River MP John Rafferty also took time to blast the plans for HST during last Wednesday night’s NDP nomination meeting here in Fort Frances.
The HST would “make life less affordable for families in the north,” Rafferty argued, recounting how he was speaking to some Atikokan seniors who already were having problems paying their hydro bill—let alone if hydro became further taxed like it is going to be under the new HST.
The HST will see new taxes on goods and services such on flights to out-camps, even funerals, Rafferty noted, pointing people to the website at www.unfairtaxgrab.com for more information.
Logically, if the HST were to be introduced in Ontario, it only should be applied to those things which already have both the PST/GST charged, Rafferty said.
But the blame for the HST lies not just with the province, he added.
“It’s between levels of government, not just McGuinty,” he stressed, pointing to the agreement that will see the federal government financing Ontario’s switch to HST, and both Prime Minister Stephen Harper and Liberal leader Michael Ignatieff have coming out in favour of the move.
Along with First Nations from across the province, Treaty #3 also has come out against the plans to move towards an HST, citing it as an infringement on historical treaty rights and First Nation sovereignty and jurisdiction as it will mean the end of point of sale tax exemption.
“Point of sale tax exemption is the canary in the coal mine of inherent sovereignty,” Ogichidaakwe Diane Kelly said in a release from her office.
“The Grand Council Treaty #3 is committed to ensuring that the symbolism of sovereignty that is the status card, known widely as “tax exempt” card, continues to be recognized by vendors throughout Treaty #3 territory,” she added.
Currently, First Nations in Ontario are exempt from provincial sales tax on or off reserves, but only are exempt from the GST when products are bought on or shipped to a reserve.
So far, the federal government has indicated exemption under the HST will be similar to that of the GST.
“The ability of Treaty #3 citizens to utilize their status cards to receive point-of-sale exemptions on provincial taxes is more than symbolic of sovereignty; it is a practical and real act of sovereignty by citizens of the Grand Council,” the release also stated.
The decision by the federal and provincial governments on a move that would affect First Nations also was blasted for not being done in a government-to-government process that “would be jointly determined and implemented by the parties within the treaty framework.”
In response to question from NOACC delegates, Wilkinson said the transition to the HST is made possible thanks to $4.3 billion from the federal government.
This money, in the form of rebates to the public, is to help consumers adjust for the first year.
Wilkinson said the two-year agreement between the provincial and federal governments means there will be no new, if any, tax rate adjustments until at least July, 2012.
The HST will remain at 13 percent until then, at which time it could go up, down, or remain the same.
Under agreement with the federal government, provincial revenue workers will not lose their jobs but remain protected by their collective agreements and continue to work—in fact, the federal government will get first dibs on hiring them.
Getting out of the tax business, however, will save the province $100 million.
When asked about the lack of advertising regarding the proposed changes, Wilkinson said once the tax reform becomes law, there will be ads to explain it. But prior to then, the McGuinty government is committed to not spending taxpayers’ money to pay for partisan advertising.
While the proposed tax reform has not become law yet, the provincial and federal governments signed a memorandum of agreement back in March to proceed with it.
Ontario Finance minister Dwight Duncan will be including all of the measures that need to be taken in the fall budget bill, with the aim to have it passed by the end of the year.
This will give the province six months to prepare the public for the change come July 1.
