What’s the big fuss over harmonized sales tax in Ontario?
(Photo Credit: Kranky’s cartoons)
Starting on July 1, 2010, Ontarians will start paying a single 13% sales tax. This is from the recently released provincial budget. The province will now be combining GST and PST into one tax. Many of you may be saying “who cares I already pay both GST and PST and this will just make it one tax instead of two separate ones.” Well, you may pay both taxes on some products, but there are a significant amount of goods that are currently exempt of PST. That juicy Big Mac below will be one of the many items going up in price as it used to be PST exempt. By July 2010, it will cost 8% more.
Nothing like being in a recession and paying a little more tax to make that already tight budget, tighter. It is astonishing that when people are losing their jobs, the government of Ontario decides to throw a little more tax burden on the shoulders of consumers.
In order to not completely spit in the face of consumers, Ontario Premier Dalton McGuinty and his Liberal crew are planning to give tax rebates to Ontarians to “slightly” offset the tax increase. For example, families earning less than $160,000 will receive $1,000/year, but single people will receive much less. This is merely to avoid political suicide as McGuinty plans on running for re-election in 2011. I doubt this will do much for his campaign.
Some goods will continue to remain PST exempt thankfully. They include children’s clothing, diapers, feminine hygiene products, books, child car seats and boosters, and new homes costing less than $400,000.
Many economists do view this change as a good thing as it does stimulate investment, but at the cost of hurting consumers. In the past, the PST in purchases made by businesses was not tax deductible. Under tax harmonization, PST will be deductible thus reducing the cost of materials for businesses and therefore creating incentive to purchase more goods, which should stimulate investment.
According to the Ontario Chamber of Commerce, “[tax harmonization] reduces the cost of capital in Ontario, which boosts investment, raises productivity and the standard of living in Ontario.” Nova Scotia harmonized taxes in 1997 and investment in equipment rose 12 per cent. But this comes at the cost of the average consumer who will not benefit from the tax breaks businesses receive. The executives at the top will benefit. What is new? Paying less taxes will allow the already deep pockets of executives to continue to get deeper, while wallets of the working class will continue to grow thin.
Sales tax is a regressive tax (poor people pay more than rich people), which means by having to pay more sales tax, poor people lose. Here is an example:
Say a poor person makes $100 and consumes $50 of it. For simplicity, lets says the harmonized sales tax is 10%. That means the poor person pays $5 in sales tax. As a percentage of their income, poor people will pay 5% in sales taxes ($5/$100). Now lets look at rich people. Lets say they make $500 and consume $100 of it (it is fairly reasonable to assume that the rich are 5 times richer than the poor but only consume twice as much). This means a rich person will pay $10 in sales tax. As a percentage of their income, rich people will pay 2% in sales tax ($10/$500).
What does this all mean? When harmonized tax comes into action on July 1st, 2010, consumers will pay more tax, with the poor getting hurt the most. Essentially, businesses benefit and consumers lose. Thank you Premier McGuinty.
