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moneysense.ca, 16/12/09
Not a Tax Grab After All: CCPA report on HST
Some of the media coverage on Ontario’s move to harmonize its sales taxes with the GST has verged on the hysterical. Our local paper, The Ottawa Citizen, for instance features an online calculator which purportedly tells you how much extra you’ll be paying on such items as gasoline, electricity, internet services, hair cuts and home heating. The paper was deluged with outraged readers complaining about a “tax grab” and dismissing any notion that businesses will pass along their own tax savings to the consumer.
A new report by the Canadian Centre of Policy Alternatives (not exactly what you’d call a “business friendly” organization) titled Not a Tax Grab After All: A Second Look at Ontario’s HST finds that the HST will be a wash when it comes to impact on the pocket book on most families. The report finds that the median gain across all families in Ontario will be $2 and the average loss will be $37, excluding the impact of the one-time Ontario Sales Tax Transition benefit.
To the extent that the facts have a bearing on the politics of the issue, the government’s HST plan should survive the initial political onslaught. Any fundamental tax change that yields no big winners or losers is, almost by definition, a good political tax change. And that, our analysis suggests, is what harmonization will deliver in Ontario.
The CCPA is not alone. Andrew Coyne recently wondered what the fuss is all about considering the HST has proven to be a wash in Atlantic provinces that had implemented it earlier. It is distressing to see that the debate over harmonization has gotten so partisan that the worth of an idea is determined by who introduced it rather on whether it is a good one.
moneysense.ca, 16/12/09
I don’t understand the hype. Yes, extra taxes suck, but their are credits for low income citizens and the reduction in prov. income tax. I’m not a fan of McGuinty, ever since the health ‘premium’ but this transfer from income to consumption is a start. It was shown that the Province isn’t going to make more money from this.
Personally, I’d prefer a higher (matching the federal) basic personal amount, and adjust the brackets for inflation creep so that low income earners see the gains immediately rather than having to apply for ‘credits’ at year end.
@Jon: I’m not a big fan of McGuinty either and I still strongly dislike the health premium but he did the right thing here. In fact, I’m starting to like the premier even more because the Globe reported today that the province is considering privatizing the LCBO, OLGC and Hydro One. I’m not sure of the other companies but I strongly feel that the LCBO should be private. It would have fetched an excellent sum back in the days when investors were so hot for income trusts. It may not be a bad time now either since investors are scrambling for yield.
While the HST may be close to a wash overall, it does produce some winners and losers. Businesses whose services were exempt from PST will now lose, while other businesses that had to charge PST will now pay less under the HST system due to the input credits. It is predictable that the losers will scream and the winners won’t say much. Combine that with the fact that extra taxes for consumers in the form of HST on formerly GST-exempt services are fairly obvious, but the savings on PST are indirect and harder to understand, and we can see why it is easy to whip the public into a frenzy.
While that CCPA report seems to provide a perspective that indicates a wash in general, when factoring that some lower income families/individuals probably do not complete income tax forms – perhaps due to lack of access, complexity of the process, etc. – they will then not receive these tax credits and end up just paying higher taxes, which the report especially points out in the introduction that sales taxes wear down lower income individuals disproportionately to higher income earners.
Fraser Institute supports HST. Sometimes, left and right agree.
http://www.fraserinstitute.org/newsandevents/commentaries/6815.aspx
I think, here in BC, that the real issue is more surrounding the fact that the BC Gov’t said they wouldn’t be implementing it, only to turn around and state that they will be. For me, having our elected officials lie to their constituents is a much larger issue that HST.
I also feel bad for anyone buying a new home paying 12% rather than 7% taxes. That’s only a mere extra 5K per 100K of home. Yikes. Even more if they roll that into a mortgage.
[...] This post was mentioned on Twitter by Canadian Capitalist, Laurel Ostfield. Laurel Ostfield said: RT @CCapitalist: New Blog Post: Not a Tax Grab After All: CCPA report on HST http://bit.ly/71JL91 [...]
No doubt it is the big ticket purchases such as buying a new house/private sale car where this will really make a difference.
What’s the benefit for privatizing the LCBO?
$4.27 billion – LCBO’s net sales and other income in 2008-09
$1.40 billion – Dividend the LCBO transferred to the Government of Ontario for 2008-09 (excluding taxes)
$10.9 billion – Amount the LCBO has transferred to the Ontario treasury during the last 10 fiscal years combined (excluding taxes) to 2008-09
48.3 – LCBO’s profit margin, expressed as a percentage
CC- explain to me how privatizing companies is good for the province/country?..the ETR has been privatized and the province is losing a ton of money on it each and everyday. Yes, they make some tax revenue but not what they can be making in profits if they still owned it..if hydro ever becomes privatized say good-bye to reasonable hydro rates, lobby groups will be doing what they do now, pay off politicians in the back alley and nothing will ever be done. Private companies are there for profit and will gouge customers to no end.
The HST is a tax grab, and whoever believes that businesses will pass along tax savings, well, I have an island to sell for only $15mil, your email is needed so I can forward you my address as to where you can send me the cheque.
Canadian Capitalist – Why do you feel the LCBO should be a private company? I’m not being disagreeable, I’m just curious as to the reason(s).
In Alberta, alcohol sales is by private owners of stores as opposed to crown corporations (LCBO in ON, LLC in MB), and their prices are any cheaper than crown corps. If anything, I’ve seen them higher. What you do see is liquor shops on almost every street corner. So much for efficient market theory in that particular area.
Why should the Province of Ontario be in the liquor distribution business? If so, why not other high-margin businesses such as cell phones or cable? Private companies already are involved in many regulated utilities such as gas distribution and as far as I can tell, they are functioning just fine. Enbridge delivers gas to our homes, a business as important as delivering electricity. The Province is in deep deficit. Selling crown corporations that are in businesses that the Government should have no business to be in will generate funds to address some of the shortfall. If the Government can get a good price for these businesses, why not sell assets to finance the deficit instead of issuing bonds?
@boko: Businesses passing along savings to consumers has been the experience of Atlantic provinces. Why should Ontario be any different? If the Province does privatize Hydro One it will be a regulated utility, which have to apply to the Province for rate increases. I don’t know enough about ETR to comment knowledgeably but I’m all for privatizations as a way of financing the deficit.
Wouldn’t a money-making business is exactly the sort of business the government should be in, rather than running up higher and higher debt?
I get that the reason that it’s alcohol is archaic and dumb, but I’m not seeing who it’s actually hurting right now.
That said, I don’t see who the sale of the LCBO would hurt either (unless a company I disagree with bought it up – like Rogers or something – and then I’d only be ‘hurt’ due to a personal bias), so I guess we’ll just see what happens.
> Selling crown corporations that are in businesses that the
> Government should have no business to be in will generate funds
> to address some of the shortfall.
I see nothing wrong with a government investing in companies or owning businesses. If the investments owned by the govnernment are generating positive cash flow and offering good prospects for long-term growth (beyond what is achievable by bonds) — as in the case of the LCBO — then it’s difficult for me to imagine why selling it would be in the interest of the citizens of Ontario.
As for selling other assets — I’m totally in favour of ditching businesses which are no longer productive or which offer little hope of growing or generating funds. But selling the LCBO — much like how selling the 407 ETR should have been viewed — would be a mistake given that it has enormous margins, a long-term captive audience, and a huge barrier to entry.
I’m from BC where the gov’t is also putting in the HST. Everyone seems so clueless. This will be a huge benefit to businesses in the long run. The consumer will be better off through lower overall costs. At point of sale you will pay more tax, but the tax will be against a smaller base and this is good for business which is the back bone of our country. without business there are no jobs so suck up the couple months that it takes for this to move through the pipe people.
BC’s government does have a credibility issue despite whether one agrees with the HST or not.
Meanwhile, Alberta remains some of the least taxed Canadian citizens on all accounts.
I like the HST. I think it’ll be great for everyone, businesses and individuals.
For all those that are treating this as a partisan issue, here’s an excerpt from the Federal Conservatives Budget 2009 document:
http://www.budget.gc.ca/2009/plan/bpa2-eng.asp
Provincial Sales Tax Modernization
Provincial retail sales taxes (RSTs) are outdated and inefficient. They impose a significant tax burden on new business investment and increase the day-to-day operating costs of Canadian businesses. Unlike the Goods and Services Tax (GST), under which businesses receive a credit for the sales tax they pay on their inputs, these costs are subsequently embedded in the prices consumers pay for goods and services. Ultimately, this makes our businesses less competitive, reduces employment and lowers the standard of living for Canadians. Modernizing these harmful taxes by implementing a value-added tax structure harmonized with the GST is the single most important step that provinces with RSTs could take to stimulate new business investment, create jobs and improve Canada’s overall tax competitiveness.
The RSTs in effect in the provinces of British Columbia, Saskatchewan, Manitoba, Ontario and Prince Edward Island are significantly increasing their respective METRs on new business investment. If all five provinces currently imposing an RST were to adopt harmonized value-added taxes, the METR for Canada on new business investment would be reduced by more than 7 percentage points. The benefits to businesses investing and operating in these provinces would be much greater on both new capital and other inputs used in the production of goods and services as a result of the elimination of sales tax.
The Government remains committed to working with provinces that still have RSTs to identify and evaluate potential areas where changes to the current framework for federal-provincial harmonization could facilitate provincial movement towards the creation of a fully modernized and efficient consumption tax system in Canada.
CC – selling off assets to finance deficits is a poor way of running a country/economy. Deficits will be here again ..what do they sell then..maybe their new borns?
This reminds me of a friend I had, everytime he got in debt he would start selling off his belongings, now he has nothing to sell and living in poverty. True story.
I am proposing a hypothesis.
When both left and right leaning think tanks agree that something is a BAD idea it is probably a REALLY BAD idea.
(Cutting GST)
When both left and right leaning think tanks agree that something is a good idea, it probably is a good idea.
(HST is better than PST, or at the very least, it will not have the adverse effects that commie Jack thinks it will)
As an aside, though I am not really a fan of the CCPA, they have earned some respect IMO in that they actually analysed this and let the results “fall where they may”, even though their results did not support the expected “HST is bad for the poor and middle class etc” position one would expect the CCPA to say.
I have to say, I cannot imagine CD Howe or Fraser institute releasing a research paper that did not support their ideology.
I’m torn on the LCBO… there’s only two ways to sell it, with or without the monopoly. If you sell it with the monopoly, then all you’ve effectively done is a sale/leaseback much like a lot of the real estate the government turned into cash, and ultimately it will mean either higher prices for us the consumer, or lower revenues for the government, as the new owners seek to get a return on their investment.
But, if you remove the monopoly, the value of the LCBO goes down significantly as it has a lot of expensive leases and union labour that would then have to compete with every corner store on the block, which means the taxpayer would then get a lot less value for the sale.
I just can’t see any situation where divesting it will gain as much future revenue for the government as keeping it will, which means that as a taxpayer.
And while I understand your point, CC, that the government should not necessarily be competing with other businesses, where do we draw the line at the productive assets they should hold? Many public institutions have invested funds, pension plans, etc… and we expect them to earn a return on those… heck, if you sold the LCBO I wouldn’t be surprised if the CPP fund, caisse de depot, teacher’s pension plan and opseu’s pension plan bought all they could get… so what is wrong with the ontario government doing it?
The LCBO is “profitable” the same way taxes are “profitable” for government. It’s a regulated monpoly, able to extract all consumer surplus.
The Ontario government could nationalize and monpolize lots of other industries, which would suddelnly become “profitable” for government.
Better idea. Sell it. Government can still pull all the liquor taxes. If government needs money, it should be gained through taxation, not regulated monopolization.
If I’m the government, why would I sell an Asset producing income!? Why not sell the one that is not performing well? It doesn’t make sense.
HST is a Tax Grab. If a parent who wants to transfer a 2 million asset to their kids, they have to pay *drum* $260,000!
And for people, who say it will benefit Ontario because company will not have to pay tax, just take a look at what happened to Atlantic Canada. They have an Office in Canada but their factory is in South America! They also promise that savings will pass on to consumer and looked at what happened to GST!
Government knows that in the next 3 years, there will be the biggest transfer of wealth and they want those money! Over 70 million Baby Boomers will retire in North America.
This is why CREA, OREA, Mutual Funds, Condo owners, Land Lords, Restaurant owners are all fighting for it…
Next year, watch out for High Interest Rates, Inflation, Tax Grabs, and Debts. I say a mini recession in Ontario!
The reality is, we face a future of higher taxation. I’m in B.C. and I feel very alone as a supporter of the HST. Though the outrage at the government is deserved — the Campbell Liberals deliberately misled voters during the election — the HST is more efficient than the PST. As for bigger scope of the HST, i.e. haircuts and restaurant meals and such, I prefer to pay a little more for these things than face an increase in income taxes.
@boko: Yes, it is true that Ontario can’t sell a steady stream of assets to finance the deficit. Still, I think that the Government should get out of the liquor distribution business especially now that reports indicate pension funds are willing to pay top dollar. The one crown corporation I’m not sure about is OLG. If it is privatized, it should be regulated such that we don’t have an epidemic of gambling addiction.
@Ghostryder: I agree that that CCPA deserves a pat in the back for publishing the results even when it did not agree with their initial assumptions.
http://www.canadiancapitalist.com/the-fraser-institute-and-average-canadian-family/
@Steve: The Citizen reported today that pension funds are salivating over the prospect of acquiring LCBO and other assets. This might be a good time to get top dollar for these assets.
[...] Canadian Capitalist notes that the new HST in Ontario and BC doesn’t seem to mean as much extra burden as bandied about in th… [...]
[...] Canadian Capitalist on HST Tax Grab [...]
As a senior living on my own, The HST, will cause me to lose my house. When you are on a pension, you get no increase in pay. Pensioners have fallen very much behind. Prices on everything, have gone out through the roof, so year by year, pensioners, have lost ground. The only way low income families can cut back on costs are food and utilities. My furnace is at 12 for day, overnight, it is set on 10. Laundry is done in cold water, clothes are hung up to dry, only one light is on at a time. Buying meat, is out of the question, so is cheese, we do without, many things that other people take for granted. My car is long gone, to catch up on bills. Living in northern BC, is costly, the HST is a killer. There will be a lot of families, and, single Moms and their children to be, living on the street. Never in my many years, have I seen, big business pass any savings on to the consumer. The HST, was planned for big business for their benefit only. Everything Campbell has to say, I automatically deem it a lie.
Uh, oh. the CCPA report isn’t available any longer on the CCPA website. Just tried getting it and got message “access denied”….
It’s naive to think that business will pass on the savings. It’s just another hit for hard working families. All the corruption and garbage that has gone on with these institutions I can’t believe how stupid our government is. Families need help directly not through tax credits and other tax ploys. GST, PST, Income Taxes, Property Tax hikes, fees on services and now HST!-the family doesn’t have a chance!
I am type who gets screwed the most by this HST implementation. I do not make enough to enjoy a 1% tax cut, yet my cost of living is really no cheaper, but I still receive only the minimum GST, HST, and OST rebates. Then to top it off the HST added nearly $20 to my “budgeted” gas bill every month. I have no spouse or children; yet I am getting soaked in order to support your children for school or your spouse because she/ he wants to stay home.