McGuinty considers harmonizing sales tax and GST
HAVELOCK, Ont. - Ontario will take a "long, hard look" at harmonizing its provincial sales tax with the federal GST, but Ottawa could help seal the deal if it offers financial support, Premier Dalton McGuinty suggested Friday.
"I just think we need to give a rethink now in a number of areas that we've rejected in the past," he said after touring a new ethanol plant in the central Ontario village of Havelock.
"But if we're going to make our economy more competitive, and make our businesses more productive, we've got to ask ourselves, what do we need to do to get there?"
Business groups, the federal Conservatives and even McGuinty's own task force on competitiveness have long pushed Ontario to merge the two taxes, but the province has repeatedly shot down the idea.
The McGuinty Liberals maintain the move would reduce provincial revenues and increase the cost of some household products like heating oil and children's clothing, which are not subject to the provincial tax.
Earlier this week, Ontario Finance Minister Dwight Duncan said he wouldn't open negotiations with Ottawa on merging the taxes.
But McGuinty said Friday he had already raised the matter with Prime Minister Stephen Harper and hoped to continue those talks.
He argued that while prices would go up, a single tax could also lower costs to businesses and help them become more competitive.
It's the same argument the Ontario Chamber of Commerce made Thursday when it pressed the province to harmonize the taxes, saying it would save businesses about $100 million a year.
Businesses pay both the eight per cent provincial sales tax and the five per cent federal goods and services tax on equipment and machinery, as well as on daily operating costs such as electricity. But they can only claim a tax credit for the GST.
The business lobby acknowledged that some prices could rise in the short-term, but consumers would benefit in the long run because a single tax would lead to a much stronger economy.
Quebec, New Brunswick, Nova Scotia, and Newfoundland and Labrador have already harmonized their provincial sales taxes with the GST.
But those provinces got financial help from Ottawa when they made the move to tax harmonization, McGuinty pointed out.
"There have been some supports in the past," he said.
"When the Maritime provinces wanted to go there, they got some federal support. When the province of Quebec went there, they got some federal support. So it's a conversation that I think (Harper and I) are going to begin again."
In 1997, the Jean Chretien government convinced Nova Scotia, New Brunswick and Newfoundland to harmonize their sales taxes.
While the new combined rate of 15 per cent was lower than previous tax totals ranging between 18 and 19 per cent, many consumers found themselves paying more for items that had been exempt from the provincial sales tax.
Overnight, the tax more than doubled on gasoline, heating oil, privately sold used cars and other items. A Nova Scotia government study estimated consumers paid an extra $84 million in the first year, while businesses paid less thanks to new tax credits offered by the harmonized plan.
Len Crispino, president of the Ontario Chamber of Commerce, said he was "absolutely delighted" that McGuinty is considering a single tax, and added the federal government should offer financial help to Ontario during the initial transition period.
McGuinty insisted he hasn't had a change of heart and that he never rejected the proposal outright.
Governments of all political stripes have resisted the idea in the past because "we all want to go to heaven, but nobody wants to die to get there," he said.
Yet the premier dismissed the proposal last November when the province's Task Force on Competitiveness, Productivity and Economic Progress recommended it as a way to stimulate Ontario's sagging economy.
At the time, McGuinty said he would only consider it if the federal Tories provided some financial support.