As of July 1, 2010 the provincial governments of Ontario and British Columbia will combine GST/PST taxes into a combined HST tax. They will raise taxes in a highly controversial fashion. Consumers will pay a harmonized sales tax (HST) of 13% in Ontario and 12% in British Columbia.
The provinces of Ontario and British Columbia currently have debt obligations of $193 Billion and $29 Billion respectively in 2009/2010 budget. With expectation of an interest rate hike by the Bank of Canada, interest payable on these debts will quickly rise. In Ontario alone, interest on debt is an estimated $9 billion anually. Both provinces were forced to spend billions from 2008 to 2010 to bail out industries and save/create jobs.
The combination of rising infrastructure costs, increased government spending and rising healthcare costs has forced the provinces to accumulate massive debt and deficits over the past 10 years. There are three ways to service debt:
- Default on loans (not a viable option)
- Cut spending (governments are not good at this)
- Generate more revenue ( Harmonized Sales Tax )
Welcome Harmonized Sales Tax (HST), the largest tax reform in the history of Ontario and British Columbia. A comprehensive tax reform package to reduce taxes for businesses by over $6 billion annually and simplify accounting dramatically. And don’t forget, force consumers to help cover mounting provincial accumulated deficits and recession spending.
The true concern is, what does HST mean for the consumer?
Many goods and most services that were previously not subject to the provincial sales tax (PST) will now be subject to HST for the consumer.
For the consumer, many products will be more expensive to purchase including new homes over $400,000, mutual fund fees, insurance, mortgages, food under $4, home electricity, natural gas, plane fares, taxi fares and much more. For businesses, the cost of doing business in these provinces decreases, thus saving them more money so they can grow.
The reality is that businesses will save money and provincial governments may or may not collect more taxes. The problem is that once the dust settles, will corporations in Ontario and British Columbia pass tax and administrative savings in excess of $6 billion annually on to consumers?Will there be enough competition in profit driven industries such as oil, banks, retail and real-estate for the consumer to benefit….
Or will the middle class of these provinces continue to be squeezed from increased taxes on many of the goods they consume the most?
– MastermindGrowth.com
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As a Country, I understand that as it’s citizens we are obligated to maintain the financial health of the country by consuming goods and working. So if HST was a temporary bandaid to leapfrog us out of debt. No problem. But! The same was said about PST and that tax seems to still be around isn’t it! HST will be permanent, and the spending of the Govt, isn’t going to change making HST obsolete soon, thus introducing another new tax a few years down the road. Spending must change before taxes do.
Well coming from an insurance broker I hear the worries and the stress from people everyday who are not looking forward to paying taxes on their auto insurance, especially as rates are increasing on a daily basis. People are already struggling from the effects of the recession and having to pay such high insurance rates doesn’t help, especially in a province where driving a vehicle means manditory insurance.
Personally speaking I see the hst helping these businesses after losses and depts from the recession, and I can say from experience that it is already creating jobs, but I don’t see the middle class getting anything/compensation for the help that we’re putting in with the hst.
Just an opinion from a little guy working for the bigger guy.
We are always getting squeezed! All they do is increase taxes while the ones who make the rules continue to be exempt.
With regard to the savings coming back to the consumers…. I highly doubt it. Corporations and small businesses are profit off this while getting back their hst paid on net goods purchased. This increase in tax just means what we make gross and net is worth less. This government is always trying to sell the propaganda of how these changes will benefit us! I wasn’t bourne yesterday! Anyways of making 13% more on my money, let me know!
Once again, we the consumers are being forced to pay higher taxes for a cause that will never be proven true…how will we even know if the HST credits for businesses will filter back into society ? I doubt they will. Businesses will continue to have the same payroll, but make more profit or cover more debt for themselves. There’s no need to hire more employees if the nature of their business does not demand it. This HST is just a ploy for the government to make up for it’s out of control spending.
Well laid out but quite frankly i am TAXED out! I don’t feel the surplus will be passed on to the consumer.
It’s amusing to me how a certain province (Alberta) only has a single tax, and is yet the fastest growing, and slowly becoming one of the most prospering provinces in our country. Yet, our provincial gov’t continues to cut funding from essential programs, continually grow more and more into debt, and continually increase our taxes to try and break free from this debt!!! Where is the solution here? Where is the money being spent? To me it parallels the GM fiasco again, ask gov’t for a bailout package and use that money for bonuses and company chartered travel all under the guise of improving business productivity and streamlining….
We’ve all heard this before, and until we see some form of concrete evidence of this working in our favour, we’ve got to chalk it up to the gov’t for pulling another one right in front of our eyes….
Uggghhhhh… I still have yet to understand how businesses will save with the introduction of HST other than saving on the administration costs of remitting taxes to two different governments. The “spurring the business growth” argument seems like a weak attempt by the Ontario government to justify this obviously bad idea to the public. A single family home in Toronto will run you no less thank $500k, so HST on homes over $400k is a dramatic assault on the average working family. I agree with the other other commentators when they’ve said that this tax will not likely be cut in the future. Governments are not good at cutting spending. If this really is an attempt to decrease the deficit, the Ontario government should be accountable in showing that all additional proceeds from the HST regime is being used to pay down the deficit, and they should also provide an HST expiration date. Does anyone know what happens to our quarterly GST rebates going forward?
The HST, for the most part, mirrors the current GST. So just think of PST disappearing and GST is now 13%.
On the surface, businessess will save a ton of money due to the fact that they will now eligible for increased rebates on their business inputs. Currently, qualifying business expenses are eligible for a 5% rebate for any expenses used in commercial activity. Only businessess in the manufacturing sector are eligible for the full 13% rebates. With the new HST, a businessess, manufacturing or otherwise, are now eligible for the 13% rebate.
Now will they pass this on to customers? 99% of these businessess wont and it will go towards their bottom line.
But honestly, its 8% on SOME expenses that business will be saving. Lets average it out and lets say businessess will save 5% of their overall costs due to the new HST (and dont forget about all the inputs/purchases that are imported in which the HST will have no effect at all, these currently are, and will remain taxed at 5%). As a CEO, would you go through all the trouble to re-price all your products/services becuase your can now offer your $49 shirt for $46.50 when all your other competitors arn’t going to waste their time? Will your customers care THAT much?
Personally, if a business were to make the effort to save their cusotmers that $2.50, they are probobly going to go under anyways.
This is will be interesting once it’s implemented. Personally, I think this is better alternative then raising taxes (though I think that’s inevitable anyway). Me being a regular consumer, I do see some inconveniences but nothing to have me at arms.
I’m more interested to see the legislation that stems from this, because this reform seems more of a gateway then a standalone strategy.
I work in government, and I definitely agree that current spending practices could be much better. All of the previous bloggers have brought up some valid points. However, I feel as though the HST is a result of a larger beast: capitalism and its best friend inflation. I think that governments introduce higher taxes in an effort to stay on top of the rate of inflation, and pay for services whose costs are increasing at exorbitant rates. Since the market dictates the price of goods, the government HAS TO find ways to generate revenue that will pay for the present day cost of goods, services and infrastructure.
I don’t think the government is the original culprit. I think the entire economic system and our participation in it must be evaluated. The government is just the first target in a long line of players who are also culpable.
HST will hurt consumers who are already disenfranchised the most. Stop the HST.
I’m not sure how this is going to pan out. If this tax is supposed to help businesses then why are costs increasing? My sister owns a salon. We offer services as well as products to our clients and customers. Just recently our rent was increased over $500 due to this Tax. Now if that has gone up, as well as our costs of products from our suppliers, then in turn, to balance things out we have to increase the prices of our sales and services as well for our customers.
They’ve attempted to “ease” the shift by mailing out cheques anywhere from $100-$400, but the accumulated taxes from consumption over the year will probably outweigh those cheques; so the band aid won’t stay on very long nor will it heal the wound.
There is a spending problem going on in Ontario that needs to be rectified, I don’t know if therapy or counseling will help our gov slow down, but something needs to be done. (The likeliness of something actually being done is slim, but a girl can dream cant she??)
Here’s an idea, all the money and funding that is going into revamping areas like downtown Mississauga and those twin swirling skyscrapers in right by square one; how about we DON’T and maybe put the money somewhere else. Property value within a mile of that area will skyrocket, and cost of living in general will increase, in addition to the additional tax we already have to deal with.
I still don’t see how this is a solution, temporary or permanent. I’m actually not sure if there even is one, our economy is trapped in a vicious circle of buying a lot and spending more. Then again, we have not much of a choice do we, unless we move to Calgary…lol
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