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moneysense.ca, 29/03/09
The debate over harmonization
Before I get pelted with angry comments, I should clarify that I’ve never been a big fan of Dalton McGuinty, though he represents our riding and is very popular here. I did not vote for the Ontario Liberals in the past two provincial elections and in fact, received some flak for posting that I don’t intend to. Though I’m not at all surprised at the angry backlash the proposal to harmonize the province’s sales tax with the federal GST is receiving in phone-in talk shows and online comments, I think Mr. McGuinty deserves credit for doing the right thing with this move.
Yes, it is true that the sales tax on many currently exempt items will be hiked. But, the government is recognizing the regressive nature of sales taxes and providing Ontario residents with low incomes with a significant enhancement to the sales tax and property tax credit. The budget also proposes a 1 percent cut to the Ontario tax applicable on the first $36,848 of income.
But, the most significant measure — and politically surprising in light of Mr. McGuinty’s past assertions that corporate tax cuts are a “non-starter” — in the budget is the deep cuts to corporate income taxes. Effective July 1, 2010, corporate taxes will be reduced by 2 percent from the current 14 percent and gradually drop to 10 percent over the next three years. All things being equal, corporate tax cuts will result in higher after-tax earnings and benefit investors. Note that taxes on eligible dividends are being increased. Experts also contend that many businesses will eventually pass along their savings on the sales tax on business input costs to consumers and the effect of harmonization on consumers should be quite modest. For instance, businesses will save an estimated $500 million in administrative costs alone — costs that are indirectly borne by consumers.
The transformation of the Mr. McGuinty’s government has been remarkable — cuts in personal income taxes, a simplified tax code, a business-friendly budget and even a reduction (albeit, modest) in the size of government. At least to me, Mr. McGuinty sounds like an attractive ballot choice in 2011.
moneysense.ca, 29/03/09
Keeping things simple is very important. I agree with harmonization. In fact, I think all Canadian provinces should do the harmonization.
There is short term pain, but there will be long term gain.
With the harmonization, I am wondering if the provincial component can be cut from 8% to 7%. I think that will help balance out the negative impact instead of doing all these tax credits and circumstantial exemptions. Keeping things simple should be the key to government policy.
I don’t qualify to receive the rebate cheques, nor do I qualify for any of the tax credits, but I am definitely in the population who will get hammered by the tax on stuff that wasn’t taxed before…
The biggest is applying the 13% sales tax on new homes and automobiles and such! Wow! Will that ever make a difference!
But the answer is amazingly simple! Cut down your spending! Only buy what you absolutely must buy to survive – then you’ll pay less tax! Save the spending on non-essential goods for your next business trip or vacation down south, where everything is cheaper in the first place – never mind the taxes! Going forward, that’s definitely what I’m going to do…
As far as partisan politics is concerned, I’m kind of a lunatic fringe voter and I voted Green in the last provincial election. I don’t like any of the Big 3 parties, nor do I even like the Green Party anymore. I like the Libertarian platform, but they don’t have anybody running in my riding. I wasn’t expecting the Greens to win by any stretch of the imagination when I voted, but it would have been nice to send a message to Queen’s Park that NONE of the parties represent my views through the election of some no-name candidate. Kind of like a protest vote, more than anything.
The Libertarians remind us that personal income taxes were only initiated as a TEMPORARY measure to finance the Great War (World War 1). The Government promised to repeal the personal income tax when World War 1 was over. I, along with all of the other Libertarians, think that our government should finally honour their commitment!
Phil: Are you sure you don’t qualify? The rebate is based on net income, so next year might be a good time to make enough RRSP contributions to push down net income below $80K. Or you could claim some or all of the 2008 RRSP contribution next year.
CC: I am all for harmonization and tax cuts for those who need it. However, I think this move by McGuinty et al is purely another tax grab disguised as “hormonization”. Do we really need tax hikes at this time when the economy of the province is in shambles and consumer confidence is at its lowest in a long time. These new tax hikes will most likely discourage consumer from spending and limit stimulatig the economy when it is most needed. Health premium was another broken promise and tax hike by McGuinty. This time, the tax hike is on almost everything! If this does not outrage citizens, I don’t know what will.
Under McGuinty’s watch, this province went from being a have province that contributed to equialization to a have not provice which will receive payment for the first time.
Lastly, even after all these tax hikes, broken promises, and mismangement of the economy of this province, we are looking at huge deficits and lower prosperity in this province.
I am not sure about you, but this is not the kind of party that would get my vote. They have run this province to the ground and they don’t deserve the confidence of the people of Ontario.
Happy to hear your thoughts. Thanks.
Hi CC. Is it really “net” income? The news said that it is based upon “earned” income. For the 2008 tax year, I’m over on both counts. But for 2009, my “net” would be under the limit. But my understanding is that the rebate cheques are one-time only and they will probably be using the 2008 number. That means that I won’t qualify.
Ed. Name a political party which isn’t trying to grab all of our money. The Federal Conservatives hasn’t managed money very well, the Provincial Liberals and our very NDP-like Mayor Miller here in TO are raising our taxes at unprecedented rates. Between the bunch of them, the only thing for certain is that we have a lot less money in our pockets.
Cutting spending would be a reasonable reaction to drastic increases in sales taxes. Luckily for our government, North American consumers are addicted to shopping for instant gratification the way that gambling addicts are addicted to casinos and the way junkies are hooked to heroin. So, I’m sure that they will get the tax revenue that they’re looking for…
Ceterus paribus (now you know I studied both Latin and economics!) I prefer reductions in income tax over reductions in consumption tax.
I have *so many options* for reducing the impact of a consumption tax (as noted above, by another commenter) – by shifting or delaying my consumption, substituting a non-taxed good for a taxed good (i.e., buy a used car privately; buy a resale house) – and most people have far less control over their income than they do their consumption.
I know that consumption taxes generally are regressive, but this tax in particular stands to be more efficient than the current PST + GST regime. My e-mail inbox is getting hammered with “petitions” from my friends and acquaintances who work in real estate but generally speaking, like you, I’m giving a modest tip of the hat to McGuinty for this budget.
(This is @moneygal, BTW)
(that should read, “petitions protesting the HST”)
I think the HST is a good idea but a bad time to implement it. Due to the recession people are much more sensitive to any increase in tax.
@Phil: Yes, it is based on the “adjusted family net income” of the previous year. I wasn’t sure what “adjusted” meant. Apparently, it means net income minus UCCB. So, the 2010 “bribes” will be based on the 2009 net income and 2011 “bribe” will be based on the 2010 net income. So, next year would be the perfect time to game the net income in the tax return to earn the full benefit!
http://www.fin.gov.on.ca/english/budget/ontariobudgets/2009/chpt3.html#table2
@Alexandra: ” . . . buy a used car privately . . . ”
In New Brunswick when you transfer the title of a used car you owe the HST. I have no clue as to why that is, since it’s been paid already but for some reason that’s the way it works. You may want to check that out in the plans for Ontario to bring in the HST.
I am in favor of government policies that promote economic growth. Unfortunately, I don’t have the background to judge what those policies should be. In 2008, estimated per capita GDP (US$, purchasing power parity) in the USA, Canada and Argentina was $48000, $40000 and $14500 respectively (CIA World Factbook). There was a time in the 1920s when Argentina did better in per capita GDP than Canada. The lesson from that is not to take a strong economy for granted. If the per capita GDP ratio of Canada and the USA was to fall significantly below the present ratio of 0.83, I’m not certain that Canada would survive as a nation.
Phil S said: “The Libertarians remind us that personal income taxes were only initiated as a TEMPORARY measure to finance the Great War (World War 1). The Government promised to repeal the personal income tax when World War 1 was over. I, along with all of the other Libertarians, think that our government should finally honour their commitment!”
But are you and the other Libertarians willing to see the return of the other (regressive) taxes that were in place in 1913? In that era, considerable taxes were in place on imports (we had a smaller manufacturing base then) and manufactured goods (smaller service industry). Since taxes on income are generally considered less regressive than those on consumption, I’m curious to learn how you would create a reasonably equitable tax system. Or do you feel that each of us should pay for what we need, and nothing else?
DAvid
CC, I was thinking the same thing. I have never voted Liberal in a provincial election, but I will strongly consider it next time. It looks to me that McGuinty is trying to do what’s right for the province. Great post!
I haven’t entirely made up my mind about the HST but I’m thinking I don’t really like it. What mostly bothers me are all of the provisions that seems to target higher income people. We’re already on a tiered income tax system and yet the government still sees fit to further penalize success. But like I said I still haven’t made up my mind.
I think in theory, it’s a great idea.
Our PST here in BC is a nightmare and can be confusing.
It will raise prices, though, in the short run – I doubt if companies will pass on the savings if they don’t have to.
@DAvid. I think our government’s program spending should only be a very small fraction of what it is today. For example, I don’t think that government should tax us to death and use the tax proceeds for foreign aid through CIDA – who only administer the money and hand it over to an NGO anyways. We should cut out the middle-man (I’m guessing thousands of civil servants in administrative costs) and allow Canadian citizens to donate money directly to NGOs.
That example has been one of my pet peeves, but other examples can go on and on… It’s our government forcing us to donate to charities in a manner that is so monetarily inefficient that none of us would tolerate it – with only pennies on the dollar going to those in need.
@Phil. Foreign aid (through CIDA and otherwise) represents a tiny sliver of the government’s budget. Vastly larger are expenditures for maintaining the healthcare and education systems and infrastructure. While there are plenty of places where spending could conceivably be reduced somewhat, most of the spending is in essential areas. A significant cut in government revenue would mean a large reduction in the quality of essential services.
@TraciaTim – you know, I scoured the Ontario government website and news feeds looking to confirm whether Ontario’s proposed HST will apply to used cars sold privately, and I can’t find an answer anywhere. I’m interested in the answer to this question! I should have left cars out of my example.
I am by no means a financial expert and don’t even pretend to fully understand the big picture in regards to what this new budget brings to the province. I understand it is trying to help local business and maybe it will. As for those businesses passing on the saving to consumers; I’ll believe that when it happens.
Personally I’m looking at this budget from the eyes of an average tax-payer that works 9-5, pays a mortgage, tries to save for retirement and purchases the other so called necessities of life. I really have to wonder how many of the commenter’s here own they home that they plan on living in for the next 20-30 years? My wife and I just had our first child in December and our future plans had us buying a home in the next 4-5 years just before our daughter starts public school. AFAIK when this new budget takes effect I now have to pay an extra 8% to the government? I live in Toronto, anyone that lives in this area knows that housing is not cheap. The type of home we were looking at for raising our family would easily go over the $400K minimum. In 4-5 years that means I have to give the government $40000+ !?!? That’s kind of cash could get you some nice renovations or would look even betting in my RRSP. And the tax credit of $1000? Gee thanks; even if my wife and I qualify; I would only have to pay Dalton $39K. Wow, that really helps!
Now I have to figure out if trying to buy a house now makes sense in terms of the money we would save in tax. Should I buy a house now even though we really aren’t ready or should I wait and take the tax hit in the future? I don’t know.
You also can’t forget that a lot of the other necessities of life have gone up as well. Gas, home heating fuels, public transportation costs… All of this is now going up 8% and I don’t know about the rest of you but my employer has put a freeze on salary increases for the foreseeable future. Costs are going up and there is no extra money coming in.
I’m sure that in 10 years everyone will be used to this and just accept it as part of living in this province. But this really is a bitter pill to swallow right now. Especially in the current economic climate.
Being originally from Alberta (GST only), and having lived in the Western US (6.25% tax) for a few years, I moved to Ottawa (15% tax) for 5 years before returning to Alberta in 2007. Let me tell you, paying all that sales tax in Ontario was quite a shock to the system. I never quite got used to it, and I think it deterred me from ever buying a new car or a new house (although I still got nailed with pst on the car and land transfer tax on the house). You would think that a province with so much auto manufacturing would tax the purchase of vehicles LESS rather than MORE.
Shows what I know about running a province.
@Geron. This is where our political views will probably be irreconciliably different. And while my view is libertarian, I would say that most Canadians are socialists.
If you go through the list of government departments, you’ll see a number of them – such as museums – which should be non-profit entities, not supported by our tax dollars. Even our so-called “essential” services are woefully inefficient – such as the distribution of our health care funds through a maze of countless bureaucrats before pennies on every dollar make it down to the service providers.
The libertarian philosophy is that the right people should pay for the services that they use, not forcing everybody to pay for it. Forcing everybody to pay for everything would be a socialist philosophy. Why should some taxpayer in, let’s say, Saskatoon, fund an infrastructure project here in Toronto? Why should a suburban commuter subsidize our transit system and why should a transit rider pay for new roads?
Granted, there are services that protect ALL Canadians, such as National Defense, Foreign Affairs, the RCMP, etc. But why should we be forced to pay for services that we don’t use? And some people use and abuse services – why should ALL taxpayers suffer for that?
Phil S,
You have not answered my question to you.
On CIDA — that money is targeted to specific locations where the money will do the most good, and in one instance with which I am very familiar requires that the donor (s) from Canada ,and the receiving country raise about 6/7th of the total donated. There is a requirement that the funds be carefully accounted, and a restriction on further funds to any country, or donor partner if full and accurate accounting does not occur. Thus there is good return on the investment, money is mulriplied and it is targeted where it will do the most good, the local government also supports the initiative, and the participants have a good reason to ensure the funds are fully accounted.
I very much doubt this takes “thousands” of civil servants to manage, more like a handful.
As Geron so eloquently put it — “A significant cut in government revenue would mean a large reduction in the quality of essential services.”
Since most of our government budgets are spent on Health Care, Education, and social services, (in BC about 75%) what would YOU cut to see a significant reduction in taxes: roads, drinking water, policing & military, or something else?
Now if we look the the increase in child care facilities that has occurred in Canada due to the Tory Child Tax Credit, we can readily see how well folks come together to create infrastructure and services when left to themselves.
DAvid
Phil S asks: “Why should some taxpayer in, let’s say, Saskatoon, fund an infrastructure project here in Toronto?”
Possibly because it benefits the Saskatoon resident in an indirect manner. The road from the manufacturing heartland to Saskatoon allows the fridge she needs during the summer to be shipped. The water and sewer system allows the worker to live in a location which is a reasonable distance from the work site.
It seems to me that a country based on Liberterian principles would take us back to pre Industrial Revolution economies, where most lived in squalor on farms extract just enough to survive on.
DAvid
@mfd: I’m not sure how all the provisions in the budget target higher income people. True, the $1,000 transition benefit only applies to families that have a net income of less than $160K (or individuals with a net income of less than $80K). That is a pretty high bar.
In fact, the opposite might be true. Harmonization is a regressive tax — it hurts lower income Ontarians more, which is why there is a provision for enhanced sales credits. But the cuts in corporate taxes will disproportionately benefit individuals who own a lot of stocks — presumably these people have much higher incomes than normal. In my mind, I don’t think of this as even more taxing on higher income individuals and families. In fact, that is one of the problems I had with the “health premium” — it was a proportionately higher tax on average income households.
@Alexandra & @Traciatim: I’m not sure the HST will now be applicable on used vehicles. I would think not but I’m not sure. On the same topic, I notice that there is a PST but not GST on home insurance premiums. Would a HST now be applied on it?
@Ian: It is true that *new homes* costing more than $400K will cost more. Apparently, the PST savings for builders will amount to 2 to 3 percent of the price of a new home — savings they will presumably pass on to consumers. As someone pointed out before, we have a choice with many consumption taxes — we can modify our consumption by buying a resale home in that price range.
I don’t know CC. Sure maybe there aren’t that many provisions that affect higher income earners but the ones that are there do bother me. It continues to compound the fact that I pay more in property tax for an 866 square condo then someone who pays for a whole house simply because of the value of my property. I don’t use more services than someone else but I’m forced to pay for more.
Same goes for children. My fiance and I are choosing to have 2-3 kids and not 5 or 6 and she will only take a year off for each of them. She’s making a sacrifice to go back to work just like a parent who decides to stay home for longer makes a sacrifice except the government penalizes us.
Don’t get me wrong, I believe in social services like health care, I believe in CPP and EI (though not in its current form), and I would love to see a national child care program. I make my contribution via a tiered taxed system but it just seems the system wants more out of me.
I wasn’t planning on buying a brand new $500k house but a $400K was a definite possibility. Now I won’t by a brand new house at all. Looking at all the ways the government taxes you is new to me. We work hard to earn our income and I’m beginning to wonder what the point is.
Maybe I should have been more clear. Purchase of a used vehicle, there are trhee taxes in NB when purchasing a vehicle, the HST when purchased any vehicle used through a dealer, the Provincial Vehicle Tax, PVT, when purchased a motor vehicle from an individual, and the Tangible Personal Property Tax, TPPT, when you purchase a boat or aircraft from an individual.
They are all 13%, and apply every time the title transfers inside NB under their respective guidelines.
Maybe the various levels of government are not saying this but their actions- HST does afford businesses greater tax credits, raising of the threshold of when small biz tax rate, expanding the life-time capital gains exemption on qualified small businesses, improved tax credits for apprenticeship training, lowering of corporate taxes, elimination of small business surtax, accerlating CCA allowances, shifting of the municipal tax burden from businesses to home owners- seems to indicate that policy makers believe that the recovery will be powered by small business growth and not a return to excessive consumer consumption or multi-nationals going on a hiring spree.
It is interesting because the rhetoric is on the consumer level but the actions are on the small business level.
@DAvid. It’s because you answered your own question. The Libertarian view is that we should only be paying for the services that we use, which I completely agree with… All Canadians “use” services like National Defense, RCMP, etc. But I’ve been to the Aerospace Museum umm… Zero times.
Look, there’s no convincing me that our government isn’t totally pissing away our tax dollars on useless program spending. And I’m sure that there’s no convincing you that our government should be more responsible with our money. That’s where I just chalk it up to partisan differences in our political views. I just get rather perturbed when my friends at AECL really don’t care whether they sell any reactors or not, they continue to earn their 6-figure salary and government pension regardless of how many hundreds of millions they lose.
Or maybe it’s just envy that I don’t have a pork barrel job for life… ;0)
Here’s an in depth analysis of the HST debacle straight from a tax specialist’s mouth that I figured would add value to you guys: http://colourfulmoney.com/?p=433
I believe that all heating/cooling costs in all political buildings .Prov.Dominion,should be payed for out of salaries by the inside workers enjoying what I call “A taxable Benefit ”
The worker? inside pats no taxes or costs wereas the stay at home picks up the tad for comfort or medical neccessity ,
All govt workers should get same pay unless theyre Profeionals.
No way should Unions run the Country.if they strike then fire them Mail delivery should be delivered by reetirees if fit enough to carry the bag . Offer them $15 per hour and stand back from the rush.
The results should lower mail costs annd lower management fees and Pensions .City vehicles should all be ru on Nat Gas with refill stations at convenient locations . no city /Govt employee sould have a credit card to use on the taxpayers vehicle to go to the cottage and return on my taxes All govt Prov vehivles should be well identified by colour and Dept Name so get to it Mr Miller and MGINTY