An Ontario report shows how small the HST’s impact will be on middle-class households, and a deeper look provides a lesson for those British Columbians thinking of joining the anti-tax crusade.
Globe and Mail
Anti-HST hysertics ought to look at some new hard data coming out of Ontario. It shows how small the impact will be on Ontario’s middle-class households, and a deeper look at the study provides a lesson for those British Columbians thinking of joining the anti-tax crusade.
Using data from the Ministry of Finance’s tax records, counting 5.3-million households, and spending habits from Statistics Canada (based on 26,000 households), the Ontario government study is as reliable a test run of the likely effects of implementing the HST as we’re going to see.
In the first year, buoyed by one-time tax incentives, almost all households will enjoy a net cash benefit, in the hundreds of dollars. By the third year, households making up to $60,000 will still be better off, while households making more than that will pay a modest price (from $45 to $295 for households making $60,000 to $150,000). Over the long term, it is practically a wash.
If anything, it presents a worst-case scenario for what taxpayers can expect. The projections do not factor in the economic growth that would inevitably be brought on by implementing the HST and making other tax changes (such as cuts to corporate, capital and income taxes). It also assumes that businesses would pass on only a very modest proportion of savings from falling prices for their goods on to consumers – only 20% in the first year, and 90% in the third year, rates below those made in other projections, including by the Bank of Canada.
It’s important to dig into this level of detail because of too much of the opposition around the HST is driven by fear, not fact. The HST’s costs are explicit while the benefits are largely hidden. Many services that were once only saw federal tax (the GST, at 5%) will soon be taxed at the provincial rate as well, adding up to 13% in sales taxes. These are inescapable realities, and some sectors will be hurt.
The opponents fail to mention the other side of the equation, though. Items that are currently taxed multiple times, as they go from raw material to finished good, will fall in cost through a system of tax credits. 70% of these savings will go to government, exporters and towards reduced home construction costs, creating indirect benefits for consumers.
The net pocketbook impact is modest – around the price of a family trip to the movies – using the most conservative assumptions, and the economic upshot is tremendous – businesses will be more competitive and face less paperwork. That makes the opposition to the tax on grounds of personal finances without merit. British Columbians should tune out fear-mongering and embrace this chance for greater prosperity.
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Great resource Laurin. It’s amazing how many home buyers think that HST will immediately add thousands to their purchase price and operating costs. In terms of buying a home, HST only applies to real estate, legal, and other accesory fees…unless you’re buying a brand new home. Hopefully more people read your post so they can better understand the impacts of HST.