GST Harmonization – Good for Business but Good for You?

British Columbia and Ontario plan to harmonize their provincial sales taxes with the GST in 2010. Manitoba is considering it. But the political debate is anything but harmonious. So why have the provinces chosen to pay the political price to hitch their tax wagons to the still unpopular GST? The feds have already run for cover, saying it wasn’t their idea.

The basic premise is that this will be good for business which will be relieved of its provincial tax burden and thereby make these provinces and Canada a more competitive place for business – something that is laudable in this economy. Once Ontario capitulated, BC had to follow suit despite its own misgivings and the pressure is on for the remaining provinces.

But the tax revenues have to come from somewhere and that’s where you come in. Consumers will pay the combined Harmonized Sales Tax [HST] on all goods and services now subject to GST which generally means that many items not currently subject to provincial sales tax will now be taxed. We have not found many situations in which consumers save on taxes. [Please see our Primer on Harmonization for a detailed discussion]

The governments were fully aware of this transfer of the tax burden from business to the consumer and have tried to offset some of it by various means: gas rebate in BC, increased sales tax credit, lowered income tax and one time payments in Ontario and home heating rebates in the Atlantic Provinces when they harmonized in 1997.

For Ontario and BC, the federal government will pay out billions for such “transition costs” to keep provincial tax revenues in proper balance.

But as for the net new tax burden on consumers, we are expected to wait for business to pass through their savings to us. Even the Ontario government’s own calculations assume a significant drop in consumer costs based strictly on the “pass-through” – which is a bit like the Tooth Fairy – you have to believe! And then someone else slips a Toonie under your pillow. Except in this case, it’s your Toonie!

CARP members have been writing in with their concerns over what they perceive as a tax grab. They are not buying the “pass-through” argument. Besides, the products and services they use may not be subject to competitive pressures, like home heating and other utilities.

This is the time to make your views known. The tax is not due to come into effect until 2010 but there’s no provincial election in Ontario or BC at that time. However, there is a by-election in the Toronto riding of St. Paul’s on September 17, 2009 and the HST issue is front and centre: click here for more information So you can use CARP E-Voice to send an email to each of the provincial party leaders, your own MPP or the candidates in the by-election and let them know what you think.

In addition, please take a moment to give us your views in our . Political Issues survey