Starting July 1, 2010, Ontario will replace the Provincial Sales Tax (PST) with a 13 per cent federally administered Harmonized Sales Tax (HST). To ease the transition, Ontario has already cut the tax rate on the lowest income bracket by 1 per cent, will increase transfer payments, will provide an one-time transition benefit payment for most families and will cut corporate income taxes. Though there are some sane voices (see post Not a Tax Grab After All: CCPA report on HST), many in the media insist on depicting the HST as a tax grab. Thankfully, despite the shrill opposition from the Tories and the NDP, Ontarians seem to have no interest in raging against the HST.

Today, the Ontario Government released a report that estimates how much the HST will cost families in various income brackets. The report found that in Year 1, the HST will cost the 16% of families earning between $125,000 and $300,000 an average of $30. Every other income range will see some savings. The 32% of families with an income of between $4,000 and $40,000 will save $510 in Year 1 and $205 in Year 3. The 31% of families earning between $40,000 and $80,000 will save $435 in Year 1 and a more modest $25 in Year 3. The HST will cost an average of $200 for families earning between $80,000 and $125,000 and an average of $405 for those earning $125,000 to $300,000 in Year 3.

The report notes that the analysis uses cautious assumptions on how much savings businesses will pass through to consumers. It also points out that the analysis ignores benefits to Ontarians in terms of higher incomes and more jobs resulting from the HST and corporate income tax cuts.

This article has 34 comments

  1. Thanks for the comments on the HST.
    Do you have any information about how the HST will effect BC residents when (if?) it is implemented?
    There is a lot of negativity towards the HST here.

  2. The HST in BC will be implemented, even if the recall campaign succeeds. It can’t be turned back for 5 years.
    It will add costs to everything you don’t pay PST for today. It will make life more expensive.
    There is a decent summary here:
    http://www.theglobeandmail.com/life/work/what-the-hst-will-cost-you/article1587778/

    It does make it easier around items that already have pst & gst as it makes all the accounting easier, but for people, overall your cost of living will go up. How much depends on what you do. There are a bunch of things that will cost me more.

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  4. I don’t understand why the government assumes businesses will pass along the savings to customers. I seriously doubt this will happen. Many companies were hit hard during the recession, so they’d probably welcome a chance to recoup some cash.

  5. Do you really believe any reports but out by the government? I worked for the government, before retireing writing some of these reports and they were all slanted to the political viewpoint they wanted. One of the manitory courses I took was ‘How to Lie with Statistics’.

  6. @James – I call your bluff. I think you just made that up to be inflammatory.

    People who worked for “the government” writing reports generally know how to spell “retiring” and “mandatory”. In this age of freedom of information requests, etc., I also sincerely doubt that there would be a mandatory course with the title you specify, unless it is a facetious title for a course exactly on how *not* to lie with statistics.

    People who really worked for the government and have experienced the different political and bureaucratic pressures there are generally a lot more nuanced than to write “the political viewpoint they wanted” since they know well “the government” is not a single-minded entity.

    In my experience, some government-issued reports are good, some are biased – about as much as any reports issued by other stakeholders or groups with a political agenda.

  7. There is also the issue of how the HST will impact small service businesses: formerly charging only GST on services, we are now required to add another 8% to our fees. I’ve heard some customers say that they will be cutting down on using external services because of that increase.

  8. Am I the only person that wishes the HST boosts government revenue (e.g. a tax grab)? Wake up people, the government(s) are taking in less in taxes than they are spending on services. It’s silly to cry foul when they cut services or raise taxes – pick one or both, neither doesn’t work!

    Look at what is happening in the Netherlands today, they’re voting in someone who only promises the pain of cuts. Too bad we won’t follow their example.

    Also, to the comment about how businesses won’t pass on the savings – they probalby won’t, at first, but we are in a competitive marketplace, so they will eventually. And even if they didn’t, I am annoyed that so many think businesses making money is bad for people. Businesses aren’t some abstract entity that sucks money out of people and burns it. They spend, create jobs, and are owned by…. people!

    Do you think they’re just going to horde in tons of profits? Buy some shares.

  9. Canadian Capitalist

    @Jason: While I’m aware that BC is implementing the HST at the same time as Ontario and that opposition is strong in the province, I don’t know if BC has offsetting income and corporate tax cuts. But economists are of the unanimous view that the HST is a good thing and I’ve seen no reason to disbelieve them.

    @Greg: I agree that the HST will cost consumers upfront. At the same time, the Government estimates that the switch to HST will be revenue neutral and offset by the income tax cut, bump up in transfer payments and corporate tax cuts. As this report shows, the switch to HST will benefit households earning less than $80,000.

    Households earning more than $80,000 are likely to own more financial assets and would benefit indirectly from corporate tax cuts (first through business savings not passed on to consumers and then through the lower tax rate).

    @Beth: In an economy such as ours, competition is a reality. Businesses will have no option but to pass along savings to the consumer. Studies have found that happening when the Atlantic provinces moved to the HST.

    @James: No, I don’t blindly believe everything I read. I read through this report and I did not see anything I could object to in this report. Of course, you are welcome to point out anything that does not make sense and support your arguments with facts and references.

    Nevertheless, there are other reports that say this is *not* a tax grab (such as the one put out by the CCPA. The CCPA is a left-leaning think-tank, not a shill for business interests and their inclination would be to look how the HST hits “working families”).

    @Houska: I agree. You can see the spin in Government documents a mile away. But this report is remarkably devoid of spin, I thought. It makes very conservative assumptions and presents their findings in a matter-of-fact manner and tells us how they arrived at their figures.

    @Sandy: Yes, some businesses will be affected. A friend of mine is in the same situation. He has to boost his fees to account for the HST and clients are not very happy.

    @DividendMan: The HST will be revenue neutral, so that’s not where Ontario is likely to see extra revenues. I agree that Ontario has no choice but to boost taxes and/or cut spending.

    I also agree wholeheartedly with your comment about businesses. One thing that bugs me endlessly about Jack Layton is his endless rants about “tax breaks for big banks and big corporations and friends on Bay Street”. Except that the big banks are owned by Canadians, employ Canadians and live and work in our communities. And they send a big chunk of their billion dollar profits back to owners as dividends. The owners in turn spend, start businesses or save for their future right here in our communities. ‘Profit’ doesn’t have to be a dirty word.

  10. I’m skeptical of the exact figures given in the report because I doubt that anyone can accurately predict how price changes will affect demand. However, I do believe the general gist which is that the difference will be mostly inconsequential for consumers with high incomes and will likely lead to savings for consumers with low incomes. Where there will be big differences is with business profits. Providers of services who were not subject to PST will be hit hard by the HST and makers of products subject to multiple levels of PST will see savings from paying just the one HST.

  11. As someone leaving on the east coast in Halifax, we already have HST and it’s set to take a hike on July 1 from 13% back to 15% (which is where it was when HST first came into effect).

    Truthfully from a spending stand point I believe it makes things easier to compute, and allows you to better track what things may or may not cost.

    So the impact won’t really be to the consumer, but rather to small business that used to only have to charge GST (which is the same that happened here when it came into affect).

    They’re services will become more expensive to the average consumer which could hurt their over all revenues.

  12. It doesn’t matter how they say HST is good or bad. What’s important is how people will adjust to this. Underground economy is booming. More people are buying online. Service Exchange deals are on the rise. Financial Advisors who are focus on Tax savings will rise. The fall out will be back to those people who implemented them in the first place.

    We are on these mess because we bail out big corporations anyway. So why are we paying for it?

  13. Wrong forum to discuss politics, but i don’t think there is any doubt about it boosting government revenues.
    We do need austerity measures here instead and roll taxes back. Unfortunately we don’t educate our population enough to understand economic fundamental.

  14. If you read Table 27 of the Ontario Budget, sales tax revenue for interim 2009-2010 is stated as $17,410 and it projects 2010-2011 sales tax revenue as $19,137 (all figures in the millions); this is a greater % increase than pesonal income tax revenue. While some of this projection may be due to greater projected consumption by Ontario citizens, the budget itself can be read as HST becoming an increased revenue stream for the province. I would not call it a tax grab but I would not go so far to call it revenue neutral either. It is what it is- a way to increase government revenue without resorting to a much more unpopular income tax increase or slashing services.

    The issue with the HST is not the harmonized portion itself. It is the oddly designed aspects that makes implementation unweildly. For example, associated businesses over $10 million in revenue have different rules for HST than business under $10 million (the ITC for meals/gas/hydro and telco is 50% of the 8% of the HST portion- rather than the 13%- for the next 5 years- an administrative nightmare for a business). There’s a host of exemptions to satisfy political reasoning and not purely economic ones.

    The better design would have been to lop off 1% off the provincial portion of the tax and levy the tax on everything without exemption. Watching the concession made in its design for political reasons makes one understand why some yearn for a simple flat tax.

    • Canadian Capitalist

      @Thicken: The Budget document I look at is available here:

      http://www.fin.gov.on.ca/en/budget/ontariobudgets/2009/papers_all.pdf

      “The total tax package proposed in this Budget, net of federal transitional assistance of $4.3 billion, would reduce Ontario revenue by $2.3 billion over four years.”

      It is definitely possible that the truth is somewhere between revenue-neutral and tax grab. My personal opinion is that it is much closer to revenue neutral than tax grab but of course, others might have a different opinion.

      I hear you on the messiness of the tax system. And I agree that it would make our lives much better if the tax system was far simpler.

  15. I haven’t been following this issue too much, but doesn’t the HST replace the PST and GST? In your post you just mention the PST which scares me. 🙂

  16. British Columbia is not giving any tax breaks to residents to compensate for the imposition of the HST. That’s almost certainly why it is so unpopular here. Everybody is going to be out of pocket and often out of pocket by a huge amount depending on how much then ‘consume’ each year.

    The provincial government suggests that by combing the PST and GST into the HST, companies will save a significant amount of money and that these savings will be passed on to consumers in lower prices (despite the increase in the tax take on each transaction). Hands up anybody who believes that! Is it any wonder that opponents have so far had little difficulty in achieving the 10% threshold required in most ridings in order to request a referendum?

  17. Canadian Capitalist

    I read in the paper today that BC also opted to use the federal transition assistance to pay down the debt. Ontario decided to use part of it to fund an one-time transfer payment worth about $1,000 for most families and $300 for most single households. The ‘McGuinty bribe’ may have worked but for some reason, HST opposition never got much traction here. Part of the reason may be that the opposition here in Ontario wasn’t very successful in rallying public opinion against the HST.

  18. Its nice to see that the comments include reference to other Provinces other than Ontario. Why was the headline not “How the HST will affect Ontarians” Why do Canadians (the you in the title) have to be only from Ontario (the only Province referenced in the article)? Alienated West Rant off.

    The HST will have extreme negative impacts on a lot of services that were formerly taxed differently. Restaurants in particular will see large hikes in the bills they are presenting customers with the predictable outcome of fewer guests.

    Booze which should have actual seen a tax reduction with the HST implementation won’t because the Government upped the price to cancel any savings that might have accrued. Restaurants will now have to pass that increase on to their guests as well.

  19. I completely disagree with the figures presented. Even though condominium maintenance fees are not subjected to the HST, the components that make it up such as property management, concierge services, pool maintenance, HVAC maintenance, housekeeping, landscaping/snow removal,electricity/ water/ natural gas of common areas, window washing will all be increased an extra 8% because all of these items are now subjected to only the GST. The Toronto Condominium Institute estimates because of the HST, maintenance fees will increase 6.5-7%. Stats Can on May 5, 2010 gave figures that far exceeded those being thrown about by the Ontario Liberals so who is right? Personally, i don’t believe either. The extra tax on gasoline, natural gas, water and electricity will far exceed the figures given no matter what income bracket your in. Please give me an example where the government has ever been right in their predictions. Any profitable business if sold to the government for even $1 will be in the red prior to the first year of operation and I can present real examples. I subscribe to Moneysense and am completely surprised that they subscribe to the B.S. being put out by the Ontario Liberals

  20. As a senior in B.C., I fail to see where this is going to save me any money at all. I figure it is going to cost me and my wife nearly $1500. a year in aditional taxes. Does the Canada pension plan or the OAP going to give me an increase? The OAP has been frozen for 16 months now. Us seniors will eventually go broke.The government can’t wait untill we are all gone.

  21. Canada is becoming a poor country now. HST is the main indication.
    HST broadened the tax basis from goods to service. I can not figure out how the govenment can increase tax to let the ordinary comsumers save. So that HST can save is nonsense.
    HST makes the poor to support the country as the poorest countries in the developing third world.
    We have no choice, the middle class is diminishing.

  22. I stated earlier that Stats Canada on May 5th gave figures that exceeded those being given by the Liberals today. Thefollowing appeared in the Toronto Star on that day “Statistics Canada has projected a family with a household income between $50 001 and $60 000 would pay an additional $862 per year. For a family with an income greater than $100 001, it’s a $1732 hit.” Are we to believe the Ontario Liberals or Stats Can? Personally, I don’t believe either as they’re predictions are seldom right. They keep revising and revising and eventually the truth comes out.

  23. Word is Mc nutty is sending out $100 to singles and $330 to fa………

  24. A. Edward Cullin

    Adding 8% to my hydro bill will cost me $144.00 plus per year, that is before the delivery rates go up this month. The cost of auto fuel will rise by at least $150.00 per year if the price of gas remains steady. Heating oil will go up by $320.00 if prices remain steady. Property taxes are up 3.5% this year in my municipality. Meanwhile my OAS and CPP have not gone up and my pension from my employment increased by just 0.5%.

  25. Canadian Capitalist

    @Rick: Touche! Unlike real journalists, I can’t blame headline writers for this one. It’s my fault, I apologize and will be more careful with headlines in the future.

    Yep, taxes on booze will be bumped up here in Ontario as well to make for the shortfall from the HST.

    @Ed: Do you have a link to the StatsCan report? I think you are accounting for the expense side but not the offsets — income tax cuts and increased transfer payments. The numbers in this report are also averages, so some Ontarians will pay more and some will pay less.

    I also want to add that I have no interest in partisanship. And for the record, I didn’t vote Liberal and I live in the premiers own riding.

    @dj: Yes, the McGuinty bucks were direct deposited today. For those Ontarians who have not set up direct deposit, the $330/$100 is in the mail.

  26. This article appeared in the Timmins Daily Press on May 5, 2010 ” On Tuesday, after months of bafflegab and happy talk about the 13% Harmonized Sales Tax he’s imposing July 1, McGuinty finally admitted the painfully obvious — it’s going to hit working families. Hard.

    Even that belated acknowledgement only came after he was confronted by data from Statistics Canada, requested by NDP Leader Andrea Horwath.

    The average HST tax hike, StatsCan says, will be $792 annually per family.

    Only families earning under $20,000 come out ahead.

    How telling the NDP had to get this information from StatsCan, rather than the Liberals, who have been fudging the facts and hiding the truth about the massive impact of the HST on Ontarians ever since they announced it more than a year ago.

    Up until now, they’ve insisted their total tax reform package meant most Ontarians would benefit under tax harmonization, which actually means massively expanding the 8% Ontario sales tax to hundreds of goods and services on which, at present, only the 5% GST applies.

    This includes such basic necessities as electricity, gasoline and heat.

    On Tuesday, McGuinty finally admitted: “For families at the outset, there will be an increase in taxation,” adding he realizes this won’t be easy on them. ”

    The Windsor Star also makes reference to it at http://www.windsorstar.com/new/impact/2991944/story.html ; however, their article is more complete.

  27. Correction: Ed June 10, 2010 . The following comment “Statistics Canada has projected a family with a household income between $50 001 and $60 000 would pay an additional $862 per year” should have read “According to NDP modelling not Statistics Canada.” The average HST hike according to Stats Can is $792 annually per family and these figures apparently don’t jive with the Ontario Liberals projections.

  28. So if I read the numbers right, year 3 and beyond will see 68% of people in Ontario at neutral or paying more. Realistically we should disregard the first two years as they include one time buy offs (oddly enough the payoff come in an election year). That smells like a tax increase to me.

    One huge concern I have, that a number of people mentioned, is the impact on small businesses. This seems to primarily benefit manufacturers and I can see a lot of service industry people getting affected. We hear about the jobs that will be created but where’s the numbers on how many jobs will be lost when people are spending less at their small, local businesses. I can’t believe the answer is none. I’d be stunned if there isn’t a dip in spending on local services when this comes in. I’ve seen several local landsaping and similar businesses putting out the “we’ll by the HST” signs out.

  29. The biggest problem I can see with respect to HST is the taxation of houses. 400-500k might seem like a lot for a house right now, but there are no inflationary adjustments built into our new house tax. Other provinces included adjustments for inflation in their HST implementation. Therefore, in the future when minimum prices for new homes creep above the 400-500k mark, we’ll all be paying it.

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  31. wow… incredible that people actually think this is good for them. I would agree that harmonizing the sales taxes would be a good idea except for 1 problem< the majority of items that the hst was added too never should have been added in the first place. Gasoline, cigarettes, heating oil, necessities of life, public transportation, haircuts and a whole bnch of stuff that should have NEVER had the tax added to it. This is again one of the many reasons why I do not believe in the current finiacial and governmental and leadership of this country. Until thing like capitalism and minimum wage have been removed rom society we will continue to fail as a country. If people we're really serious about making things work they would bring in stuff like profit sharing and highly regulated necessities of life.
    make the necessities tax free tax the living crap out of luxuries. You might find things start to get better

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  33. Well, we’ve cut back on a lot of stuff.

    Also moved to “wait till it breaks” mentality, no new computers/tv’s etc., until they break or REALLY get quirky.

    Clothes are also at a minimum, and we hauled out the sewing machine.

    Also, stopped almost completely buying anything packaged food wise, and virtually no HST is charged on food basics, so that has worked in our favour.

    Our savings are flourishing, and our idea is to take a vacation on that money out of country and never to be touched by the greedy hands of biz or government here, they get enough as it is.

    It’s not really effectual I will admit, however we feel better knowing we can cut spending here, and when we have enough, take a wonderful vacation out of country where it’s warm, and book it out of country, thus skipping all taxes and benefit to the people that have imposed this on us. True, we will pay “some” tax on the flight, but that’s fine.

    It’s $4000 that will never be taxed by HST, and $4000 Canadian biz will never see. Not much I know, but any sort of revenge is wonderful.