Sean Pearce
Regional News
October 30, 2009 05:48 PM
BY SEAN PEARCE
How does spending an extra 8 per cent on your phone bill sound? Cable bill? Electricity? Gasoline?
Well, welcome to Dalton McGuinty's Ontario as of July 2010.
The impending marriage of the 5-per-cent goods and services tax (GST) with the 8-per-cent provincial sales tax (PST) into a single 13-per-cent harmonized sales tax (HST) has received plenty of negative attention of late.
Some critics of the HST, including Canadian Taxpayer Federation Ontario director Kevin Gaudet, argue its implementation by the Liberal government is ill-conceived and disastrously timed.
The HST will lead to an 8-per-cent spike in the price of many necessities, ranging from gas to home heating fuel and electricity, not to mention a whole host of services, he said.
A blended tax couldn't come at a worse time, he added.
"We think it's problematic that the government is looking at a tax reform policy that will benefit business at the expense of individuals and families," Mr. Gaudet said. "In principle, we like the idea of a blended tax, but not on the backs of individuals and families and put in during a recession. It's the wrong time."
Ontario Revenue Minister John Wilkinson argues a single value-added tax is essential to ensuring the province's economic viability and will save businesses $500 million annually.
Ontario will follow in the footsteps of 130 other countries around the world in embracing a blended tax Â- a prerequisite for joining the European Union, he added.
"It is the largest tax reform in 40 years and it isn't something we enter into lightly," Mr. Wilkinson said, adding the retail sales tax system in Ontario hasn't been reformed since 1961. "It will mean more tax at the cash register, but less off of their paycheques, (so) I hope people will draw their own conclusions. It is pretty easy to demonize."
In general, 80 per cent of goods are taxed by both the PST and GST, Mr. Wilkinson said, so the difference consumers will see is on the remaining 20 per cent of items taxed with one or the other. The government has already declared that on some items, including books, children's clothing, feminine hygiene products and diapers, consumers will not have to pay the province's share of the HST.
To soften the slap to your pocketbook, the province is trying to make the measure "revenue neutral", Mr. Wilkinson said, by giving individuals, who earn less than $80,000, $300, paid in three installments starting in June, and families earning less than $160,000 will receive $1,000.
The rebates are meant to ease the suffering for consumers during the transition period between July 1, when the HST comes into effect, and when taxpayers see the benefit of the permanent 1-per-cent drop in income tax on the first $37,500 earned, starting in the 2010 tax year.
As much as 93 per cent of taxpayers will qualify for that reduction, while businesses will see the corporate tax rate drop from more than 14 per cent to 10 per cent by 2013.
"The $1,000 will pay for the 8 per cent on up to $12,500 worth of goods," Mr. Wilkinson said.
"Don't get me wrong, there will be some consumers unhappy with this. They are going to be upset at the government and upset with me," he added. "I'm really OK with that because it will mean that my kids will be able to find a job in the 21st-century job market."
Mr. Gaudet said the planned tax relief will do little to offset the burden inflicted by the HST.
And he is not alone in that line of thought.
The HST is shaping up to be nothing less than a huge tax grab, said Rick Metcalfe, a Newmarket resident, retired York Regional Police officer and secretary of the Police Pensioners Association of Ontario.
It will hike the cost of living - and even dying, Mr. Metcalfe said, noting the price of a funeral is poised to jump 8 per cent.
"What I find offensive is the government's use of that tax rebate," Mr. Metcalfe said. "It's no more than a gimmick."
Mr. Metcalfe's organization has partnered with the Municipal Retirees Organization of Ontario, the Association of Retired Fire Fighters of Ontario and the Police Retirees of Ontario to form the Public Sector Retiree Coalition, which is working to heighten awareness and co-ordinate efforts to fight the HST. Yesterday, the group's rally at Queen's Park featured speakers that included Mr. Gaudet, NDP leader Andrea Horwath and Progressive Conservative leader Tim Hudak.
Far too many people simply aren't aware of how the HST will affect them, Mr. Metcalfe said, adding there's been little opportunity for public input.
"The other thing that bothers me is how all of this came to be," he said. "It seems that all of these changes have been done in secret. There's really been no public consultation on this issue."
He said the next phase of the fight against the HST is a letter-writing campaign targeted at Premier McGuinty and Liberal MPPs, in particular.
"By writing a letter saying, 'This is not right; I'm against this; this will be damaging to me and I'm not happy about it' maybe some of those Liberal MPPs will hopefully speak up in caucus about this issue."
If not, the Liberals may well have their work cut out for them in 2011.
"I think that whenever something affects the voters' pocketbooks, their memories tend to be a lot longer," he said.
History has shown that to be the case in Nova Scotia. In 1997, the Liberal government blended the province's PST with the GST Â- even lowering the PST in the process. The Liberals quickly saw their fortunes reverse, forming a minority government after the 1998 election and then being defeated a year later, winning 10 of 52 seats.
Tax reform wasn't the sole factor in the Liberal government's downfall, but it did play a role, said Nova Scotia NDP Premier Darrell Dexter, who was first elected a year after the HST came into effect.
"There's no question it was a big campaign issue in the 1998 election," Mr. Dexter said. "The government tried to sell it as revenue neutral and they were largely unsuccessful."
Mr. Dexter is quick to point out it isn't his place to tell his counterpart in Ontario how to run his government. However, the reaction from consumers was almost entirely negative, he said.
"The best way to describe (the HST) is that it's a very effective and efficient tax and it broadens the tax base, but the consumer sees many items suddenly taxed that may not have been taxed before," Mr. Dexter said.
"For businesses, on the administrative side, it is more simple and straightforward. The reality is that an effective and efficient tax is also a voracious tax and, obviously, in difficult economic times, consumers will feel it. As a government, you have to get out in front of it and explain it and during the transition, you can also offset the impact of the tax with various offset measures; that's all possible."
Newmarket-Aurora Progressive Conservative MPP Frank Klees is among those saying it's the wrong tax at the wrong time. There's nothing wrong, in principle, with making the tax system more efficient, but doing so in the midst of a recession, he said, could have dire consequences.
"It is not the time to be adding an additional tax burden on to consumers or small businesses when people are having a hard enough time to make ends meet," he said. "The last thing that we need right now is a trigger to slow down consumer spending and tacking on an additional 8 per cent on to every consumer in this province is, from my perspective, completely wrong-headed."
The provincial and federal governments deserve to share the blame for the damage the HST will do, Mr. Klees said, as it was the latter that provided a $4.3-billion incentive to the province to ensure it went ahead with the plan.
Even taking into account the $1,000 rebate, the numbers don't add up, he added.
"It's a one-time attempt, from both levels of government, to convince the consumer that this will be revenue neutral," Mr. Klees said. "We know from previous experiences with rebates that it often looks very reasonable at the 30,000-foot level, but it never is when it comes to families and small businesses that are struggling.
"It's a shell game."
Beyond that, consumers are probably fooling themselves if they think businesses will pass on any savings as many are fighting for their lives, Mr. Klees said. And they can expect little more relief once those $1,000 cheques are gone.
In Nova Scotia, Premier Dexter agrees. In the 12 years since Nova Scotia, New Brunswick and Newfoundland and Labrador put the HST in place, it's difficult to say if savings reaped by businesses have been passed on to customers, he said.
"Not so much that you'd notice," he said. "Consumers notice an increase in tax, but they don't really notice a mild erosion in the price of goods. They see the tax every day."
What's also a concern is that the HST may provide a boost to the grey market, both Mr. Klees and Mr. Gaudet said, with some service providers offering both a legitimate price and an untaxed cash one.
Regardless, Minister Wilkinson asserts the HST is the only way to go. He's visiting chambers of commerce across the province to spread the HST gospel.
Mr. Wilkinson's most recent trip was to Newmarket yesterday to speak to businesspeople from Aurora, Newmarket and East Gwillimbury. A few weeks ago, he spent a lunch hour in King talking to its chamber members. Today, he is in Vaughan.
For the most part, businesses seem to be on board with the change, Mr. Wilkinson said, adding the Ontario Chamber of Commerce has requested tax reform since 2004.
As for the growing consumer dissent, Mr. Wilkinson remains undaunted, saying he welcomes input from groups such as the one who protested at Queen's Park yesterday. But he refused to discuss if it was possible to alter course on the HST.
"We made a difficult choice and I can tell you that the government is committed to following through with it," he said. "The status quo is unacceptable because we can't keep doing the same thing in a different world."
When Mr. McGuinty visited York Region in June, he acknowledged the scale of the economic crisis, offering a similar sales pitch to the one Mr. Wilkinson is making now. The message remains constant.
"What's happening out there is big; it's really big. It's the biggest thing in 80 years; it's the biggest thing since the Great Depression," Mr. McGuinty said at the time. "There's no easy way out of this. Some folks think that all we have to do is go under the desk, hide and the whole global economic storm will blow over and everything will return to being the way it was. That's not honest."
Certainly hiding under a desk isn't a solution, but it's hard to say this is the right move either. Mr. McGuinty himself acknowledged the transition may prove problematic, but continues to assert the time is ripe for tax reform.
"If this was easy then previous governments would have done it," he said. "We're doing it, because it's essential."
So, while the Liberal camp repeatedly touts the HST as the ticket to long-term economic prosperity in Ontario, the question remains: is the eventual gain worth the short-term pain?
The answer for most Ontarians appears to be no. It's the right tax at wrong time; a time when many individuals and businesses alike can ill afford extra costs - no matter how small or "revenue neutral". â?¨When it comes to sales taxes in this province, for now, divided we stand; united we fall.