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The Globe and Mail

Ottawa budgets $2.2-billion to complete HST deal with Quebec

Fitness enthusiasts protest the HST at the provincial legislature in Toronto, Wednesday, May 19, 2010.

Maria Babbage/The Canadian Press/Maria Babbage/The Canadian Press

Ottawa and Quebec City are moving closer to the harmonization of the sales tax in Quebec now that the federal government has set aside $2.2-billion to seal an eventual deal.

The Harper government in Ottawa is fulfilling a campaign promise with the move in its new budget, which is a key difference with the fiscal plan that was defeated by the opposition in the House of Commons in March. Ottawa said during the recent election campaign that it hoped to strike an agreement before Sept. 15, and that the amount would be booked in its postelection budget.

"We have made a provision for $2.2-billion in support of the conclusion of a satisfactory sales-tax harmonization agreement between Canada and Quebec," federal Finance Minister Jim Flaherty said on Monday.

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Quebec Finance Minister Raymond Bachand said the announcement is a major step in the continuing negotiations, which would lead to a payout in line with recent deals in Ontario and British Columbia. "This is a good day for Quebec," Mr. Bachand told reporters in Montreal.

The talks between Ottawa and Quebec City have focused on a few thorny issues. As it stands, provincial and federal sales taxes do not apply on all the same goods and services in Quebec, and a new deal will be expected to smooth over these differences. For example, the provincial sales tax does not apply to books and diapers in Quebec.

In addition, Quebec charges its sales tax on top of the GST in what is known as the "tax on the tax." The federal government has demanded Quebec put an end to this practice under the harmonized sales tax. Still, it is expected that Quebec City will continue administering the harmonized sales tax, even though the federal government is in charge in Ontario and B.C.

Quebec was the first province to partially harmonize its sales tax with the GST on July 1, 1992, but the deal made no provisions for compensation.

The province started seeking a payout in 1996 when Newfoundland, Nova Scotia and New Brunswick harmonized their sales taxes - the three receiving a total of $961-million in federal compensation. The cries for compensation in Quebec became louder in March of 2009 as Ontario reached an agreement in principle with Ottawa over the HST on the promise it would receive $4.3-billion in federal compensation. A similar agreement with British Columbia followed later in 2009 for about $1.6-billion.

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