When Dalton McGuinty, the Premier of Ontario, announced his government would harmonize federal and provincial sales taxes, he appeared to be going out on a limb. Now, he seems to be at the forefront of an emerging national consensus. British Columbia's Gordon Campbell has announced that his province, too, will convert to a single sales tax; Manitoba's Gary Doer is reportedly considering the same thing. Federal Finance Minister Jim Flaherty, long a proponent of harmonization, is offering financial incentives to do so. Before long, Saskatchewan and Prince Edward Island may be the only parts of Canada where there are two separate sales taxes.
There are reasonable quibbles on the ways in which the reform has been undertaken. In Ontario, Mr. McGuinty's government is squandering Mr. Flaherty's incentive - $4.3-billion in extra federal funds - with a one-off payment to taxpayers aimed at softening the initial blow of the harmonized sales tax. In B.C., Mr. Campbell waited until after a spring election to announce his plans, creating an impression of underhandedness.
The HST itself is far from underhanded; it is a straightforward way to help industries recover from the recession. Not only will it reduce needless paperwork that wastes time and energy, but businesses will also receive billions of dollars in tax savings on machinery, equipment and other expenses - encouraging them to make new investments and helping create jobs.
The downside is that the combined tax will be applied to some items that were previously exempt. But until savings are passed down from businesses to consumers - as has proved to be the case where the taxes have been harmonized, including in most Atlantic provinces - the obvious solution is to ease the burden on individuals by cutting personal income tax, as Mr. McGuinty's government did in its last budget and Mr. Campbell's should do in its next.
It was to be expected that a left-of-centre opposition such as B.C.'s New Democrats would seize on a perceived shift of tax burden from businesses to individuals. More disappointingly, Ontario's Progressive Conservatives have lazily adopted the same line, violating their principles and placing themselves on the wrong side of the Conservative federal finance minister.
Mr. McGuinty and Mr. Campbell made difficult decisions of the kind that governments are expected to make. Premiers who decline to do so for fear of a backlash, standing back while other provinces make themselves more competitive, are the ones who will wind up looking isolated. So, too, are opposition parties that are ignoring their provinces' best interests in hope of fuelling that backlash.
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