Experts debunk Tory, NDP myths about the HST

My view by Ron Dennis

Despite “myths” contrived by Ontario’s Conservative and NDP opposition parties – focused only on the small Harmonized Sales Tax (HST) component – the McGuinty governments bold new tax reform legislation will benefit all Ontarians and create nearly 600,000 jobs.

That’s the view expressed November 26^th in Toronto’s Globe and Mail by two widely respected experts. Roger Martin is dean of the Rotman School of Management and chair of the Task Force on Competitiveness, Productivity and Economic Progress and James Milway is executive director of the task force's research arm, the Institute for Competitiveness & Prosperity.

Toronto Star’s Coyle also takes Hudak to task

That same week, Toronto Star Queen’s Park columnist Jim Coyle took newly minted Tory leader Tim Hudak to task for his “scripted outrage and no small aura of opportunistic insincerity” in leading his caucus out of Question Period over the HST. He noted that Hudak not only did NOT propose an alternative or promise to reverse the HST if he won power, he led his caucus out after this former Mike Harris government minister sang “hosannas to public hearings and the charms of the democratic process.”

“Oh, dear. The trouble for Hudak is that he has a record too,” Coyle wrote.

“He was a ready, willing and able member of a (Harris) government that showed an almost bottomless contempt for the parliamentary process and critics; a proud foot-soldier in an administration for which executive autocracy and administrative convenience were practically trademarks.”

Coyle noted that during his recent successful PC leadership bid, Hudak was “proud” of his record as a member of the Harris government, “forthrightness (that) was to his credit. “But no one who aided and abetted that regime has anything to teach anyone about respect for democracy or public consultation.”

Tax reform is more than just HST… much more!

Here’s what Messrs Martin and Milway – the two experts – had to say about Hudak and NDP leader Andrea Horvath’s HST dissembling. Most importantly, they noted the tax reform package has several elements.

• “It replaces the province's antiquated retail sales tax with a value-added tax harmonized with the federal goods and services tax.

• “It reduces corporate income taxes.

• It eliminates capital taxes on business assets.

• “It reduces personal income tax rates.

“Taken together, these reforms will make Ontario one of the most favourable places in the world for new business investment – it's currently one of the worst.”

Yes, they say, the most contentious part of the package is the HST, whose critics are recalling the imposition of the unpopular federal GST. The critics do it by focusing on this part without considering the whole package, which is less than useful. “It's like complaining that your auto shop removed the regular tires from your car – without acknowledging that they put on snow tires to improve your safety,” the article says.

Under HST, businesses will no longer pay sales taxes on goods they purchase. Now, they pay the PST and pass the cost on to us. Eliminating the PST for business will lower the cost of their investment, which means more high-paying jobs in Ontario.

Opposition critics not only ignore the complete tax reform package, they’ve constructed some carefully contrived myths about the HST that Martin and Milway dispel or clarify.

Myth 1. The HST will increase prices paid by consumers.

Consumers already pay provincial sales tax and federal GST on goods like furniture and appliances and the HST will not change that. But manufacturers, wholesalers and retailers will see their costs go down, as they will no longer be paying the provincial sales tax on the materials they buy for their products. Better yet, competition will force them to pass these lower costs on to consumers, so prices on goods where PST is assessed, will fall. That’s exactly what happened in Quebec and Atlantic Canada when they embraced the harmonized system.

For services that currently don't attract the PST, (haircuts and legal fees for example), prices paid by consumers will increase. But not by the full 8 per cent tax rate, because service providers will see their costs drop, since they will no longer be paying PST on the items they purchase.

The pair quote a TD Economics study that estimates the impact on the final prices paid by Ontarians will be an increase of just 0.7 per cent. In Quebec and Atlantic Canada, the net effect on prices was, in fact, a decrease of 0.3 per cent.

Myth 2. The HST is an excuse for producers and service providers to gouge consumers.

The Quebec and Atlantic Canada experience showed market forces pressured producers and retailers to pass on their savings to consumers.

Myth 3. The HST raises costs for small businesses.

The costs for all businesses will decrease because they will no longer have to pay PST on goods they purchase to operate. While the current PST is called a “retail” sales tax, about a third of it is paid by businesses making investments or purchasing goods.

As well, harmonization with the federal GST will significantly reduce small businesses' administrative costs.

Myth 4. The HST hurts lower-income Ontarians.

“If the provincial government were only introducing the HST, this might be true,” say Martin and Milway. “But the tax reform package provides for sales tax credits aimed at lower-income Ontarians, similar to the current GST tax credits. In addition, personal income-tax reductions that are part of the reform package will help lower-income Ontarians.”

Myth 5. The HST is just a tax grab.

Again, that would be true if the HST was the only tax change announced by the government. But it's part of a package of reforms that will actually reduce the province's tax take. Besides introducing the HST, the McGuinty government is reducing personal and corporate income taxes and providing tax credits to help compensate for higher sales taxes paid by lower-income Ontarians.

Myth 6. The HST is “business friendly.”

The HST is “Ontario friendly,” say the report authors, noting that a recent study by international tax expert Jack Mintz estimates that the tax reforms announced by the government will boost business investment by $47-billion. “In turn, this expansion will create an estimated 591,000 new jobs. These investments and jobs will lead to a combined increase in labour and investment income of $29-billion – 8.8 per cent of 2008 labour income.”

Myth 7. The HST should be delayed until the recovery is under way.

“Even if this were a good argument, we won't know when the recession is over until we're well into the recovery,” they say. “But even if the recovery is well down the road, this is the perfect time to increase businesses' motivation to invest and create jobs.”

For me, the McGuinty government proposes a bold package of tax reforms. One component – the HST – has attracted opposition vitriol with a generous dash of myth-making.

Here’s the bottom line, folks: the package is designed to improve Ontario's global competitiveness and help us all through more investment, more jobs and higher incomes.

Martin and Milway said it best: “If we want to improve economic prospects for us and for our children, we should implement these proposals.”

I say, Amen!