Ont. booze prices won't budge in harmonized system

TORONTO - Consumers may end up paying more for privately sold used cars but won't see a drop in alcohol prices when Ontario harmonizes its sales tax with the federal GST next year, Finance Minister Dwight Duncan said Tuesday.

Alcohol taxes should have been lowered under the new tax regime unveiled in last Thursday's budget, but the province will add new fees to keep shelf prices the same in a bid to protect booze revenue and promote socially responsible drinking.

The province may also hike taxes on private sales of used cars -- currently subject to the eight per cent provincial sales tax -- to level the playing field with used vehicles sold through licensed dealerships, which are subject to both the PST and GST.

"We're still sorting that out, so I'm not ruling anything in or out at this point in time," Duncan said.

Under its deal with Ottawa, the province is supposed to standardize provincial tax at eight per cent on products and services, including alcohol.

But alcohol is currently subject to a 10 or 12 per cent tax, depending on where it's sold, and that won't change when the harmonized tax system takes effect in 2010.

Keeping alcohol prices the same will also "ensure social responsibility" and will "keep revenues at current levels," government officials said.

It's just another lie to justify the Liberal government's "insatiable appetite" for taxpayer dollars, said interim Progressive Conservative Leader Bob Runciman.

"There's no way under the sun that that extra two per cent is somehow going to deter someone who wants a bottle of gin for the weekend or a bottle of wine for dinner," he said.

"That's just another indication of these guys wanting to dip as deeply as they can into our pockets."

When asked why the province isn't passing on the tax savings on alcohol to consumers, Premier Dalton McGuinty seemed unaware of the provisions in the budget.

"I don't know, are we doing something new on alcohol?" he asked.

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

The move became politically unpopular for some when consumers ended up paying more for items that were previously exempt from the provincial tax.

A few goods, such as kids' clothing and shoes, diapers, books and newly built homes under $400,000, will remain exempt from Ontario's portion of the 13 per cent harmonized sales tax.

But a whole host of other items won't escape the new levy, including gasoline, home heating fuel, real estate fees, and even haircuts and beauty treatments.

When the Atlantic provinces blended their taxes in 1997, the overall rate was reduced -- something that won't happen in Ontario when it switches to a single tax, said Kevin Gaudet of the Canadian Taxpayers Federation.

"Suddenly, you're going to have an extra eight per cent added to your gasoline bill, which right now means you'd have an extra seven cents a litre," he said from Ottawa.

"That will only get worse if the price of gas goes up again. If the price of gas goes up to $1.50 again, that'll be a huge tax grab for the government."

The province will try to ease consumer pain -- and reduce the political fallout -- by sending cheques of up to $1,000 for families and $300 for single residents, as well as sales tax credits to help low- and middle-income families.

Ottawa will kick in $4.3 billion over two years to help with the transition, a lucrative deal that is tempting other provinces to take a second look at harmonization, according to federal Finance Minister Jim Flaherty.

But consumers will only see those government cheques during the first year of harmonization, while being saddled with higher costs for years to come, critics say.

The blended tax is expected to bring in $1.67 billion for the province in the 2010-11 fiscal year, steadily increasing to $2.3 billion in 2012-13. However, those revenues will be offset by modest personal income tax breaks and other tax credits, according to budget documents.

Duncan insists tax harmonization is necessary to make Ontario more competitive, and won't pad the provincial treasury at the expense of hard-hit residents struggling through a recession.

That may be true in tough times, but a blended tax will be a boon to the province once the economy turns around, said Brian Pel, a tax expert at McCarthy Tetrault in Toronto.

"When things are going really well, they just rake it in on these taxes, as the federal government did with the GST," Pel said.

New Brunswick Premier Shawn Graham, whose province switched to a blended tax in 1997, said he welcomes Ontario as a partner in harmonization.

"I have to say at the outset how pleased I was that last week the Ontario government committed to harmonize its sales tax with the GST," he told an Economic Club of Canada luncheon in Toronto.

Graham was delivering a speech designed to woo business to the province with promises of New Brunswick having the lowest corporate income tax rate in Canada by 2012.