Ont. tax harmonization poorly timed, watchdog says
Published Thursday, March 26, 2009 3:15PM EDT
A Canadian tax watchdog says the Ontario government's plan to harmonize the PST and GST is poorly timed and will gouge Ontario families already struggling to pay the bills.
Premier Dalton McGuinty's Liberal government is releasing the budget today, which is expected to include the controversial tax change.
The harmonization plan is expected to mean that some goods and services now exempt from the PST, will be subject to an 8 per cent price increase.
Some goods will retain an exemption, but not all.
"The problem with this is timing," Kevin Gaudet, of the Canadian Taxpayers Federation told CTV's Canada AM.
"You're going to put a massive new tax on an important long list of services in Ontario. Individuals and families that are struggling to make ends meet today will now face an eight per cent increase on things like the telephone, Internet, cable television, home heating fuel, gasoline."
Under the plan, households earning under $160,000 per year and singles earning under $80,000 will qualify for three payments totalling $1,000 in the year following the implementation of the HST.
The payments, intended to cushion the blow from the increased tax, have been described as a bribe by the opposition parties.
Business groups have lobbied for the move, saying it will save them about $100 million per year in red tape costs.
Gaudet acknowledged the plan will benefit businesses and said the Ontario tax regime needs change.
But he would have preferred if it came in the form of tax reform and tax relief "which everyone agrees would be helpful and beneficial."
"Lowering corporate income tax, perhaps, eliminating capital tax quicker, eliminating the education tax quicker or straight out getting rid of the health tax -- those benefits would be immediate, large and wouldn't have harmed anybody."
Real estate concerns
The Ontario Real Estate Association says that harmonizing the two taxes could push the price of buying a resale home in Ontario up by more than $2,000.
The association says the tax plan that will be revealed on Thursday will raise moving costs, real estate commissions, as well as home inspection and moving fees. Right now, those fees are subject only to five per cent GST, while under the proposed tax harmonization, they would jump to 13 per cent.
OREA president Pauline Aunger said with the economy the way it is, "now is not the time to be erecting barriers to home ownership."
"We need consumers to invest in housing to help get our economy going again," Aunger said.
The OREA says a harmonized tax would add more than $2,000 to the price of a $360,000 resale house and would add $13 million each year to provincial coffers through resale home transactions.
While some sources have suggested that the government may exempt new homes from the harmonized tax, some reports have suggested the new tax would apply to all new houses valued at more than $400,000.
Businesses welcome change
Len Crispino, president of the Ontario Chamber of Commerce, welcomes the coming changes. He said the harmonization of the two taxes is "long overdue."
Under a provision in the expected tax change, businesses will now be exempt from PST on the purchase of goods they need to produce their products.
Crispino estimates that will result in $5 billion in annual savings for businesses.
"Eventually those companies will become more competitive and pass on those savings to the consumers," he said.
"This is exactly what's happened in the Atlantic provinces where it's been shown very clearly that consumer prices have gone down, GDP has gone up and the provinces have become much more competitive."
The Ontario government has already announced that its budget deficit will total $18 billion.
One reason for that is that the government will be spending $27.5 billion on infrastructure spending in an effort to kick start the economy.
Finance Minister Dwight Duncan said Wednesday that his budget will detail a plan to get Ontario out of that massive financial hole.
With files from The Canadian Press