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The newly renovated/reopened Splendido restuarant on Harbord Street in Toronto was packed with guests on September 8, 2009. (JENNIFER ROBERTS/Jennifer Roberts for The Globe and Mail)
The newly renovated/reopened Splendido restuarant on Harbord Street in Toronto was packed with guests on September 8, 2009. (JENNIFER ROBERTS/Jennifer Roberts for The Globe and Mail)

Tax reform

Harmonized tax to hit consumers hard Add to ...

Consumers will bear the brunt of proposed tax changes in Ontario and British Columbia while businesses reap windfall savings of $6.9-billion, a new report says.

For the first time, economists have put a price tag on the value-added taxes the two provinces plan to introduce July 1, showing that the tax rate on consumption will jump 1.5 percentage points for consumers.

The report prepared by economists at Toronto-Dominion Bank could have caused a political headache in Ontario for Premier Dalton McGuinty. But the impact of its release Friday was somewhat blunted, having come one day after the Liberals sailed to victory in a by-election in the Toronto riding of St. Paul's, despite attempts by opposition candidates to turn the race into a referendum on the harmonized sales tax.

Ontario New Democrat Leader Andrea Horwath called the timing "awfully fishy." A spokesman for Revenue Minister John Wilkinson said he was pleased with the report, regardless of the timing.

TD Bank chief economist Don Drummond, who played a key role in advising the McGuinty government on the proposal to harmonize the provincial sales tax with the federal goods and services tax, said he shared his findings with government officials a week ago but did not finish the report until the day of the by-election.

"I guess in a perfect world I would have preferred to have it out there before that," Mr. Drummond said. "It could have been a basis for debate."

The report said the tax burden will shift from businesses to consumers, who will pay higher prices on goods and services ranging from haircuts to new home purchases. Businesses will pass on most of their cost savings to consumers, but the lower prices will not fully offset the higher taxes, the report said.

Mr. McGuinty is facing political turbulence over tax harmonization, but nothing compared with the maelstrom that is battering B.C. Premier Gordon Campbell and his Liberals, who are facing a pointed anti-HST campaign by former Social Credit premier Bill Vander Zalm, and plunging poll results over their decision to embrace the HST after ruling it out during the recent provincial election campaign.

The TD report adds fresh fuel to accusations by opposition members in both provinces that harmonization is little more than a tax grab aimed at benefiting businesses at the expense of consumers.

"TD Economics shows the 'Dalton Sales Tax' is just that - a permanent tax grab that will result in higher prices on the things we buy with no immediate benefit to consumers," Ontario PC Leader Tim Hudak said Friday.

David Docherty, a political science professor at Wilfrid Laurier University, said the by-election results will resonate beyond the riding of St. Paul's because they will force the Tories to rethink their strategy. The Liberals emerged unscathed even though the midpoint of their second term has been dominated by spending scandals at two agencies.

"Voter turnout was so abysmal, McGuinty may well ride an apathetic public to a third term," Prof. Docherty said.

It's a different story in B.C., where the HST has been just one of a series of economic woes for the Liberals that also includes a soaring deficit and resulting cuts to government programs and services. Opposition to the HST has driven down the Liberals' ratings in the polls and has prompted Mr. Vander Zalm to participate in an anti-HST rally in Vancouver today with NDP Leader Carole James. Both Mr. Vander Zalm, who left politics in 1991, and Ms. James have acknowledged the unusual nature of their alliance, but said their political differences matter less than hammering the Liberals over the HST.

"It's probably the first time that people from the left, the right, the middle - people from all political persuasions have come together, as well as labour and business and seniors and students," Mr. Vander Zalm said in an interview Friday.

Once the provinces combine their PST with the GST, the new tax will be 13 per cent in Ontario and 12 per cent in B.C.

Businesses will reap huge savings because they will be able to claim rebates. But consumers will end up paying the new tax on goods and services that are currently exempt from any tax. Both provinces have attempted to take the sting out of harmonization by exempting goods such as diapers.

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