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Fred Lum/The Globe and Mail

The Ontario government is making a populist appeal to placate consumers by exempting their morning cup of coffee and newspaper from the province's proposed tax reforms, and it still has room to hand out a few more goodies.

The exemptions unveiled Thursday are the latest example of the McGuinty government's assiduous handling of politically sensitive retail tax changes, and have led to questions about whether British Columbia will follow its lead. But the B.C. government has taken a different approach to harmonizing its sales taxes by rushing out all its exemptions at once, leaving less wiggle room to soften the blow for consumers.

It's a tale of two provinces' diverging strategies as they prepare to introduce tax reforms that will raise prices on many everyday goods and services. While the McGuinty government has so far escaped relatively unscathed, in B.C. the harmonized tax issue is scorching Premier Gordon Campbell's government. It faces a pointed anti-HST campaign that played a role in the federal New Democratic Party's by-election win in a Vancouver-area riding this week.

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Both provinces plan to introduce a value-added tax next July 1 - an initiative made possible with billions of dollars in federal funding. Under agreements with the Harper government, Ontario and British Columbia can grant exemptions of up to 5 per cent of the estimated goods and services tax base in each province.

The B.C. government has used up its room for rebates under its agreement with Ottawa, but could compensate taxpayers through other means, said Graham Currie, a spokesman for the province's Finance Ministry.

"We said previously we would look at possible mitigating measures as part of our normal budget process," he said. "That work is ongoing."

The B.C. government has already announced an exemption for home-energy costs and a point-of-sale HST rebate on gasoline. The $325-million, point-of-sale rebate uses up virtually the entire 5 per cent, a government official said. Both provinces also made such household goods as children's clothing and shoes, car seats, diapers and feminine hygiene products exempt from the HST.

In Ontario, Finance Minister Dwight Duncan said he has no plans to bring in additional exemptions for others that have lobbied for tax relief, including the mutual fund industry. He said he is simply granting an exemption on newspapers and snack foods under $4 that has been in place for decades.

"For many of us, a trip to the local coffee shop is more than a case of getting our morning double-double," he said at a news conference held in a Tim Hortons outlet in Toronto. "It's also a gathering place to meet our friends and family."

However, a government official confirmed that it has "a little bit of room" under its agreement with Ottawa, suggesting there could be further exemptions. In June, the government announced an enhanced rebate for new home purchasers that would see the harmonized tax charged only on the amount over $400,000 instead of on the entire price.

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Mr. Duncan granted the latest exemption after industry representatives argued that an 8-per-cent tax hike on a cup of coffee and a newspaper would impose undue hardship on low-income consumers, as well as on their sectors.

John Hinds, president of the Canadian Newspapers Association, said the new tax would be a huge hit to the industry at a time when it is facing enormous challenges.

"The government was very interested in ensuring that we have a strong newspaper sector in Ontario," he said.

Ontario Progressive Conservative MPP Peter Shurman said Thursday that he expects further exemptions because Mr. Duncan responds to pressure.

"If he caved on this he will cave on other things," he said.

The exemptions announced Thursday will cost the provincial treasury $325-million a year. Too many exemptions will end up lessening the economic gains from the tax reforms, said Finn Poschmann, head of research at the C.D. Howe Institute.

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"The exemptions are a stiff price to pay for political acceptance," he said, "and we should hope this is an end of it."

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