HST: Complex, Intricate And Occasionally Devious

By Alan Halberstadt, Ward 3 City Councillor


When Ontario Revenue Minister John Wilkinson came to town in early March to pitch the Harmonized Sales Tax (HST), he started by noting that the Ontario Chamber of Commerce has been bugging Dalton McGuinty’s government for five years to combine the 5% federal GST with the 8% provincial PST.

“The two governments have been tripping over each other figuring how to tax the same thing twice . . . how to tax the other guy’s tax,” said the Liberal Government’s power salesman cum sacrificial lamb. Wilkinson added that the province will save half a billion dollars getting rid of its PST auditing army, failing to mention that about 1,250 revenue ministry employees will be paid as much as $45,000 each in severance packages (totaling up to $25 million) even though many of them will henceforth transfer to the federal revenue service.

This is just one of the many deceptions of this byzantine (defined as highly complex, intricate and occasionally devious) tax.

Wilkinson trumpeted the HST as one component of major tax reform that will transform Ontario into “the most competitive jurisdiction in North America.” He mentioned cuts to income tax, making Ontario “the lowest personal income tax province in Canada.”

His underlings handed out a booklet entitled Ontario’s Tax Plan For Jobs And Growth. The booklet heralded Liberal tax proposals that would eventually save business almost $4.5 billion a year from replacing the PST with the HST, $2.4 billion annually from Corporate Income Tax cuts and nearly $1.6 billion a year from eliminating the Capital Tax.

What Wilkinson didn’t emphasize, of course, was the damage to business, beholden to their consumers, to be triggered by increases to goods and services under the HST that have been exempt under the PST. Staples like gasoline, electricity and heating will be subject to an additional 8 %.

Other commodities and services previously exempt include retirement fund management fees, dry cleaning, home service calls by skilled tradesmen, landscaping, home renovations, private resale vehicles, real estate commissions, message therapy, vitamins, fitness trainers, barbers, esthetician services, funeral services, legal fees and cigarettes.

More telling for Windsor, as a border city dependant on tourism, will be 8% hikes on hotel rooms, taxis, camping sites, domestic air, rail and bus travel, green fees for golf and tickets for live theatre with 3,200 seats or less.

Due to HST rebates provided to municipalities and non profits, Windsor City Council was originally told that the impact of the harmonized tax would be a wash. Later we found out that 8 % will be applied to recreational services, costing families and individuals who use city facilities, like parents of minor hockey players and figure skaters, a total of $500,000 to $600,000 a year.

City Hall subsequently calculated that the HST will also burden municipal taxpayers with an additional $1.6-million in annual capital budget expenditures. This is primarily due to consulting and construction contract payments now subject to full HST.

Since Wilkinson mentioned that the Ontario Chamber is overjoyed that businesses will now have to deal with only one tax regime (“the 7,000 pages of PST regulations that bedeviled you at midnight,”), I called Windsor-Essex Regional Chamber of Commerce Treasurer Ed Miles to get his view.

Ed is a straight shooter and no HST cheerleader. He acknowledges that the ease of bookkeeping is friendly to businesses liberated from overzealous provincial auditors and expensive appeals.

Businesses such as restaurants and Wal-Mart who already pay 13 percent will also benefit since they will now get rebates on the 8% PST portion as well as the GST portion.

Exporters who will now get full rebates are the “big winners,” says Miles. Local businesses are “moderate winners” depending on their products and services, and consumers are “moderate losers.”

Many consumers, however, believe they are big losers. Polls have showed that 74% of Ontarians oppose the HST. If they stop spending, businesses won’t get rebates on what they don’t sell.

Wilkinson, back in March, salivated over the three phased payments equaling $1,000 to be sent to annual families with net incomes under $160,000. This is designed to smooth the transition for consumers and businesses once they feel the jolt of HST hikes on July 1. In a year’s time, so the plan goes, businesses will have realized the income tax and HST rebate savings and passed them along to pent-up consumers ready to spend.

Lower income Ontarians will benefit from a range exemptions and tax credits. For instance, seniors now receiving $240 annual GST rebates will get another $260 for the provincial portion.

McGuinty is tapping into $4.3 billion in one-time transition funding from the feds to buy off Ontario consumers. The premier, however, recently confessed to the validity of an NDP study indicating that a family earning between $70,000 and $80,000 can expect to pay $722 more a year under the new tax. These costs will be in perpetuity while the $1,000 compensation cheques are for one year only.

It all adds up to “a huge win” for the provincial treasury, says Mills, noting the sweetheart deal of letting somebody else (the feds) collect and audit bills for you. “They could easily exempt utilities (from the HST). That’s not an oversight. That’s a tax grab.”

Given Miles’ suspicions that revenues will be “even better than what they realized,” the government should reduce the HST to 12%. “They should have done the right thing and lower the rate and still be ahead at the end of the day.”

That might even stop some of Windsor’s renowned bargain hunters from parading across the border to exploit Michigan’s 6% sales tax.

The bitter reality is that McGuinty needs the money after raising government spending over his first five years in office by $27.5 billion, or 40 %. Ontario’s total debt of $213.2 billion is “a ticking time bomb,” according to CIBC. With interest rates set to rise, McGuinty faces the grim prospect of paying an additional $500 million in annual debt servicing for every 1% boost in rates.

With all the claims and counter claims flying over its worthiness, measuring the HST’s impact after a year would be a good project for vigilant provincial ombudsman Andre Morin. Perhaps that explains the recent push by the government to get rid of this thorn in the side, and speculation that lifelong Liberal Susan Whelan of Essex County would replace him.