Ontario’s Harmonized Sales Tax: a regressive policy

In Ontario’s provincial budget last month, the government announced its intention to harmonize the GST (5%) and PST (8%) into an HST: a Harmonized Sales Tax. By combining the two taxes into a single 13% tax, the government aims to lower costs for Ontario businesses by reducing paperwork and merging the two provincial tax departments into one.

While at first glance the HST appears to be a simple policy change, it in fact will have a significant impact on individuals and families, and disproportionately those with low-incomes. Combining the two taxes will mean that a wide variety of consumer items that currently are only taxed by GST – many of which are basic goods and services – will now be charged PST as well. These include gasoline, water, hydro, used cars, government goods and services, internet, cable and telephone services. In fact, the only items exempt will be books, children's clothing and footwear, children's car seats, diapers and feminine hygiene products.

The tax will be effective July 1, 2010. In order to help off-set this added cost to consumers, the government will be issuing three rebate cheques, totaling $1000.00, over the year that follows the introduction of the tax. However, for many people this rebate will still not come close to covering the costs created by the HST.

Too often, discourse about taxation in Canada focuses only on the personal benefits of tax cuts, namely the fact that they put more money into peoples’ pockets. However, government taxation is important and can result in multiple benefits for society. Taxation provides governments with the revenue they require to provide public services such as health care, education and law enforcement, and infrastructure such as roads, bridges and parks.

Public infrastructure and services are a crucial part of the functioning of our society and our individual and collective well-being. As the Canadian Centre for Policy Alternatives affirmed in a recent study, “public services make a significant contribution to the majority of Canadians’ standard of living – worth at least 50% of their income.”

But the benefits of taxation also depend upon the kind of tax policies governments implement. The HST tax is considered a regressive tax, as it is applied uniformly to people regardless of their level of income and will therefore take a larger percentage from low-income people than from high-income people.

As basic goods and services compose a larger share of a lower-income person’s budget, the HST will disproportionately impact those who can afford it the least. People who are living in poverty – including those who rely on social or disability assistance, seniors and the working poor – will bear the highest cost of this new tax policy.

In comparison, progressive taxes – such as income tax – take a larger percentage from the income of high-income people than it does from low-income people. Progressive taxes are a positive method for governments to not only gain revenue for public services, but to redistribute wealth and limit the growth of income inequality.

Canada has experienced an expanding wage gap over the last few decades, in which the majority of Canadians have fallen behind. More progressive income tax policies would enable low-income people to share in our economy’s wealth.

The HST represents a step backwards, particularly as the policy comes while the government of Ontario is preparing to implement its much-anticipated poverty reduction strategy. This new tax policy threatens to further marginalize the poor in Ontario and undermines the governments’ own proposed policies to promote the well-being and dignity of low-income people.