Personal income tax cuts for Ontarians aimed at taking the sting out of harmonization won't be jeopardized if federal legislation to give the province financial compensation for the change gets derailed on Parliament Hill.
The Ontario government plans to introduce rules on Jan. 1 that would allow Ontarians to keep a larger slice of their paycheques regardless of whether federal legislation that is part and parcel of the province's tax changes also passes, Finance Minister Dwight Duncan said Thursday.
The income tax relief is part of a broad package of changes that includes the province's plan to harmonize its 8-per-cent retail sales tax with the 5-per-cent federal goods and services tax. The federal government plans to introduce its legislation next week. It has until March 31 to pass the legislation that would provide $4.3-billion in compensation for Ontario consumers, who would face higher prices on many goods and services now exempt from the provincial tax.
Introducing the personal tax cuts would be financially difficult for the Ontario government without a guarantee that Ottawa will replace the forgone revenue, said Toronto-Dominion Bank chief economist Don Drummond.
Ontario introduced legislation last week on the personal income and retail sales tax changes, which are aimed at making a province hit hard by the recession more competitive. The Liberals are using their majority in the provincial legislature to usher the changes into law, despite a growing backlash against harmonization.
But the Harper government might not win enough support from opposition members on Parliament Hill to pass its legislation. The New Democrats are adamantly opposed. The party rode public distaste for the new HST to a recent by-election victory in British Columbia.
Liberal Leader Michael Ignatieff is also not keen about a topic that is divisive within his caucus. A spokesman for Mr. Ignatieff declined to comment.
"We will not be speculating on federal legislation that we have not seen," Michael O'Shaughnessy said in an e-mail.
The federal Liberals run the risk of antagonizing their provincial cousins if they oppose harmonization, said David Docherty, a political science professor at Wilfrid Laurier University. And that could hurt their chances of winning more seats in Ontario in the next federal election, he said.
"If they don't play this right, it may come back to haunt them."
Mr. Ignatieff has fostered close ties with many Liberal MPPs in Ontario. A handful of cabinet ministers, including Mr. Duncan, backed his leadership bid in 2006.
Ontario New Democratic Party Leader Andrea Horwath said MPs of all political stripes are concerned about tax harmonization. She criticized the McGuinty government for planning to go ahead with the personal tax changes before all the legislation is in place. "The government is taking a crapshoot on this one," she told reporters yesterday.
Mr. Duncan said the personal tax measures do not require federal approval or funding.
"We are proceeding as though the agreement will pass the federal house," he told reporters.
With a report from Jane Taber in Ottawa