One half of the 5.3 million households in Ontario will feel the brunt of the province's looming harmonized sales tax, including middle-income earners who were supposed to be unaffected by the new levy, the government's own study shows.
The study released on Tuesday by the McGuinty government says that households with annual incomes of $60,000 to $70,000 will be out of pocket $45 a year. The study is the most exhaustive attempt to date to measure how the sweeping tax changes will affect households at various income levels. It reveals that the harmonized tax will take a bigger toll on middle-income earners than previously believed.
Premier Dalton McGuinty is under attack by opposition members over the harmonized tax, which Progressive Conservative Leader Tim Hudak says is an "unmitigated attack" on the pocketbooks of Ontarians. But Mr. McGuinty is having a much easier time than Premier Gordon Campbell in British Columbia, where former premier Bill Vander Zalm has helped to ignite a grassroots rebellion against the tax. Harmonization comes into effect in both provinces on July 1.
Finance Ministry officials in Ontario prepared the study as part of the government's public relations campaign to sell the controversial tax to the public. Finance Minister Dwight Duncan kicked off the campaign last week from a construction site in Mr. Hudak's Southwestern Ontario riding of Niagara West-Glanbrook. And Mr. McGuinty was on the road on Tuesday, doing interviews on regional radio stations in Ottawa, Guelph and Belleville.
The McGuinty government is selling the harmonized tax as something that will make Ontario more competitive on the global stage and generate new jobs. Harmonization will shift the tax burden from businesses to consumers, who will pay higher prices on goods and services ranging from haircuts to fitness club memberships. While officials have acknowledged that there will be some short-term pain for Ontario consumers, they have argued that this is the price to pay for building a more prosperous economy.
"We've told people this isn't easy, but on balance if this is something we can do to actually make sure we have full employment in this province overall, that's what's going to support schools and hospitals and public services," Revenue Minister John Wilkinson said in an interview.
Mr. Wilkinson said the study backs up the government's assertions that the harmonized tax will be "a wash for the middle class" while low-income earners will be better off and those with above average earnings will pay more.
The government repeated this assertion in a news release accompanying the study: Households with incomes between $40,000 and $80,000 will be "roughly neutral on average," it says. An accompanying chart shows households with incomes in that range saving $25 a year.
However, the government's own figures in the report tell a different tale. The study examines the harmonized tax in 2012 to get a truer picture of the impact; families with annual incomes of $160,000 - including single parents and couples - are eligible for $1,000 in one-time payments this year and in 2011 to offset the impact of the new tax. Ontarians will begin receiving their first payment on Thursday.
The impact for households with income ranging between $70,000 and $80,000 will be $95 a year, the study says. The tally jumps to $480 a year for those households with incomes between $150,000 and $300,000, the highest level examined.
However, those households that fall below the $60,000 threshold will come out ahead financially, the study says. This group will benefit from new tax relief measures that will more than offset the higher cost of everyday goods under the HST.
The study was endorsed by two economists with close ties to the government. Tax expert Jack Mintz and Toronto-Dominion Bank's Don Drummond both concluded that Ontarians will be better off with the tax changes.
The study did not impress opposition members, however.
"Even the government's own figures clearly demonstrate that more than half of Ontario households are going to get hit with a tax increase through Dalton McGuinty's tax grab," Mr. Hudak said.
New Democratic Party Leader Andrea Horwath accused the government of "torquing" the numbers by assuming that businesses would pass along 90 per cent of their savings to consumers.