Ontario tips over to HST

Consumers will feel pinch of tax merger: experts

Canoe March 26, 2009

By Romina Maurino, THE CANADIAN PRESS
TORONTO – Consumers will feel some short-term pain when Ontario moves to merge provincial and federal taxes Thursday, but experts say the pinch won’t hit people’s wallets for months and the overall economy could benefit in the meantime. “The taxes on some products will increase, but it’s a small hit over the long haul,” said TD economist Craig Alexander. “There was a lot of concern when the GST first came that it was going to create a lot of upward pressure on consumer prices, and it didn’t happen.”

Any change is likely to be at least a year away, and won’t be implemented until the beginning of next year at the earliest, said Brian Pel, a tax expert with the law firm McCarthy Tetrault.

“There are all sorts of practical considerations that have to be dealt with, such as the ability of businesses to calculate this tax on their cash registers,” Pel said.

If the change is implemented on Jan. 1, 2010, and cost savings were passed through to customers, people could begin to see the effect throughout the course of that year.

Premier Dalton McGuinty has strongly signalled he plans to merge the province’s eight per cent sales tax with the federal five per cent goods and services tax in Thursday’s budget – a move that seems to pit businesses against consumers.

Businesses say they could offer more competitive prices to consumers if they didn’t have to pay unrecoverable provincial sales tax.

Companies currently pay both PST and GST on things like equipment, machinery and electricity, but can only claim a tax credit for the GST.

Under a harmonized model, all those costs would be recoverable.

For consumers, the shift would mean taxation on items that are currently exempt from the PST, including new homes, children’s clothing, books, fast-food meals under $4, and feminine hygiene products.

However, the government said late Wednesday it plans to help Ontario families earning less than $160,000 annually with $1,000 a year in financial aid.

Some goods are currently exempt from PST in Ontario because they have been deemed basic necessities.

Other goods are exempt because stakeholders have successfully lobbied for them to be over the years.

Under the new Ontario system there could still be exemptions, but those would have to be negotiated between the federal and provincial governments.

It is also possible that some of the additional consumer costs would eventually be recovered if companies pass their savings on to customers.

Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador have already harmonized their sales taxes with the GST.

While those changes led to spikes in the prices of some goods and services initially, experts say the move seems to have been beneficial, and ultimately consumers simply got used to the new prices.

“The four provinces that have harmonized have not had a bad experience with the decision,” Alexander said.