From an investor’s standpoint, you can still vote with your money. Yet another reason to choose Vanguard over iShares Canada whenever possible. Or choose Mawer over Trimark, etc. This is true for all Canadians (including Ontario residents).

If I have TD mutual funds (ie. their e-series), which are presumbly based in Toronto, am I taking a hit on the overheat? Is it the consumers in the province, or the business in the province that takes the overall hit? Should I be moving all mutual funds out of Ontario-based management companies?

For certain services that were previously PST exempt, they will likely see some reduction in demand (because their relative prices will go up), but the real cost of some goods and services (clothing, consumer appliances, automobiles, computers, etc.) will actually decrease. According to Andrew Coyne of Maclean’s, when the HST was previously implemented out east “prices in the Atlantic provinces fell by 0.3 per cent, while some large items fell as much as 3.0%.” A TD Bank study quoted in the article projects prices will rise in Ontario by 0.7%, with the Ontario Chamber of Commerce putting the per capita loss at $70. A small price to pay, IMO, for the huge benefits this change should bring about.

The Coyne article is excellent if anyone is interested.
http://www2.macleans.ca/2009/11/23/a-few-kind-words-for-harmonization/

http://voiceoftoronto.com/wp/2009/11/proposed-hst-and-2009-ontario-budget-measures-would-create-jobs-increase-investment-and-raise-incomes/

“…proposed corporate income tax cuts and other recent tax changes would significantly increase jobs, boost capital investment and lead to higher annual incomes for Ontarians.

…small businesses would benefit substantially as the effective tax rate on their business investment would fall by more than half from 28.6 to 13.3 per cent.”

It doesn’t take a rocket scientist to see that reducing an effective tax rate by half would create jobs, increase investment capital, and generally be a good thing for businesses and the people they employ.

On the other hand, I can’t see how the HST benefits consumers. Taxing formerly exempt services increases the real cost of those services to the end user. If the real cost of those services sees an overnight hike of 7-8%, laws of economics dictate that there will be fewer users willing to pay the higher rate.

Reduced users will only negatively impact businesses, since the price increase does not increase the company’s profits, only the amount of tax collected and paid to the respective provincial government.

Jack Mintz (former President of the CD Howe Institute) did a report that estimated Ontario would gain 591,000 net new jobs, increased capital investment of $47 billion, and increased annual incomes of up to 8.8% or $29.4 billion over the next 10 years.

If you think the HST is a terrible idea, then such reports probably won’t sway you, but economists are pretty much unanimous that it’s a good idea. To the extent that this allows Canadian businesses to become stronger, then it could be a very positive thing for investors, not to mention most residents of Ontario and BC.

Al R

A cynic would suggest that the industry is conditioning their clients to blame future underperformance on the HST, rather than the fund fees. It’s an easy target for them to transfer blame upon.

“….my wrap fund underperformed the index again!…..must be that darn HST!”