politics

Sense and Nonsense of the Harmonized Sales Tax (HST)

Published on:
http://thecanadiancharger.com/page.php?id=5&a=506

This past Canada Day, both Ontario and British Columbia joined Nova Scotia, Newfoundland, and New Brunswick as the latest provinces to accept the Harmonized Sales Tax (HST) system. The HST combines the Goods and Services Tax (GST) and the Provincial Sales Tax (PST) into one, single sales tax. For Ontario and B.C., the tax comes to 13% and 12% respectively.

The reason for harmonization is threefold: (1) To increase investment in provincial businesses, thus making them more competitive, (2) to create more jobs, and (3) to eliminate hidden taxes incurred throughout operational costs. Adopting the HST will also mean that products that were exempt form the PST will now incur the 7/8% “PST” under harmonization, although some products will be exempt altogether. This process of exemption/inclusion, however, is highly arbitrary, and lacks a democratic basis.

Reactions to the HST have been mixed at best. The NDP have roundly condemned the tax, claiming that it is a tax grab that will help provinces accumulate up to 3.5 billion dollars in revenue, the purpose of which is unclear. Public opinion in both Ontario and B.C. have been vastly negative, with estimates of 90% in both provinces against the tax.

The more conservative-minded C. D. Howe Institute has long been advocating for an HST, citing the aforementioned reasons, and claiming that the HST is harmless to average households given that it is “revenue neutral”. However, the most interesting report probably comes from the Canadian Centre for Policy Alternatives, a progressive think-tank that has done extensive research on the HST, and the role that it is likely to play in Canadian provinces.

The CCPA believes that the HST will hurt modest to middles class income households. Consider that “The BC government is proposing an HST credit of a maximum $230 for individuals with income up to $20,000, and $230 per family member for fami­lies with incomes up to $25,000.” This means that “an individual with $20,000 or less in income would have to spend more than $3,285 per year on the previously ex­empt goods and services listed below in order to be worse off.” These low thresholds may benefit some of the poorest citizens, but middle class families will incur much more tax with the HST.

The CCPA also believe that having increased jobs and business competitiveness as a result of the HST is greatly exaggerated. Cutting operating costs does not necessarily increase investment in businesses, especially when the tactic also includes laying off workers. Rather, investment is based on the future estimations of profits and sales.

It is most important that the revenues incurred with the HST be used for progressive purposes, much like the Scandinavian models. In the Nordic countries, the HST is a progressive tax that helps to build communal infrastructure and social welfare. What Canada intends to do with the HST is still largely opaque. Moreover, the provincial governments should increase the threshold for credit, and decrease it in a slower fashion as incomes increase.

Advertisements
Standard

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s