Monday, September 21, 2009

Harmonization – A word only singers should use, not the taxman!

It is said that there are two things in life unavoidable – death and taxes. It’s really unfortunate that taxes have become such a mainstay in our lives to become unavoidable, heck even acceptable in some cases. Have you ever purchased something of value and paid no tax? Yep, me neither. Somehow those merchants who advertise with gusto “save the tax” or “we’ll pay the tax” manage to still charge us the tax on our bill of sale.

Ontario is poised to follow our neighbours to the east, Quebec and the Atlantic Provinces, with the introduction of the HST, or Harmonized Sales Tax on July 1st, 2010. Some promoters of the new taxing system will even go further to tag it a Value-Added Tax…because that sounds a whole lot easier to sell!! A tax that adds value…who’d a thunk!!

The argument for the blending of the current (RST) Provincial Retail Sales Tax (8%) and the (GST) Federal Goods & Services Tax (5%) is that this “Made in Ontario” solution will “help make businesses more competitive domestically and internationally.” This said according to the website The proponents for HST and the Ontario Liberals cite the success of the HST in the Atlantic Provinces as it’s reasoning for the blending of taxes. As is usual with other Liberal party reforms, they’ll lean to an academic report as their source of information. In this particular case, they point to “Lessons in Harmony: What Experience in the Atlantic Provinces Shows About the Benefits of a Harmonized Sales Tax”, written by Michael Smart out of the C.D. Howe Institute.

Unlike other reports written by professors this one is only 28 pages in length, so one can read it fairly quickly and easily. Smart runs through a gambit of examples on the successes of HST as felt by the Atlantic Provinces, and leave one with a fairly complacent feeling that HST is okay. That is until you reach the Appendix. Up until this point, Smart has been very clear that the figures and examples that he used are estimates, and as the reader, you don’t question the figures…until now. In the opening paragraph of the Appendix, Smart writes “…my main estimates of the investment impact of the reform may be confounded by other economic changes in the Atlantic provinces, such as the sharp expansion in the offshore oil and gas sectors in Newfoundland and Nova Scotia, and the introduction of the Atlantic Investment Tax Credit for manufacturing and processing industries in 1997.

The bottom line is that when it comes to taxes, the consumer always loses…no matter how you sugar-coat the delivery method. According to the Hamilton Spectator, they quote Revenue Minister John Wilkinson as saying “We’re still listening to music on an eight-track when the rest of the world has an iPod. We can’t attract investment and jobs in the 21st Century with a tax system from the 1960s.” Wow, Ontario must really suck at attracting businesses solely on how our tax system is managed. I guess someone at Toyota should have picked up on that one before they built their plant in Woodstock.

Perhaps it’s not the system that’s scaring investment away from Ontario, but rather the tax rate. With the new HST, consumers are going to be anteing up more at the till in some instances, with seeing little to no change in other purchases. The argument that businesses will lower their prices due to the cost savings received through the HST system falls short of an accurate depiction of business costs. The main thrust or benefit to the businesses is on capital expenditures and managing tax reporting. Speaking of tax reporting, with the new HST system, the Provincial government is providing one-time transitional funding for small businesses to cover the cost of new accounting and point-of-sale systems. (Maybe I missed something here, did we just spend more tax-payer money?)

Other business costs previously exempt from the RST, but now applicable for HST include advertising, memberships, association fees, and other services. Considering the Hamilton Chamber of Commerce is comprised of over 75% of small business, I wonder how receptive they’ll be to an automatic increase in their membership of 8% due to the HST?

The other elephant in the room is the question of proposed tax increases. Right now, with each tax applied differently it is very easy for the electorate to channel their displeasure at any tax increase. Raise the GST? (which is being strongly considered to mitigate the increased debt acquired through the recent recession) Hit up your local Member of Parliament. Raise the RST?(which is probably unlikely at this time, but there are no guarantees) Challenge your local Member of Provincial Parliament. But raise the HST? Any contemplation of this makes it way too easy for deflection of blame to the other recipient of the tax monies.

Enjoy your purchases now fair consumer, as of July 1st 2010 you'll be be rejoicing your Canadian citizenship in one breath, while cursing your choice to reside in Ontario in your next breath.

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