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Shush now, Jim


 

Jim Flaherty, March 30Last week, Ontario’s Liberal government, after objecting to the combined tax for years, decided to switch. Ottawa agreed to help Canada’s most populous province with that move by giving Ontario one-time compensation of $4.3 billion. ”I think this is very good economic policy,” Flaherty told reporters in Ottawa Monday. “This is a massive tax cut, a $5 billion tax cut for businesses in the province of Ontario and that means job creation and investment in the province of Ontario. So, this is very good economic policy over time.”

Toronto Star, todayFinance Minister Jim Flaherty and fellow Conservatives are distancing themselves from the harmonized sales tax as public angst grows over the price hikes it will mean on everything from fast food to funerals … federal Conservative sources have told the Star that earlier in the summer, officials in Prime Minister Stephen Harper’s office ordered Flaherty to tone it down. “They asked Jim to stop talking about (the tax) so much because it’s not helpful,” said one insider.


 

Shush now, Jim

  1. So.. is the promise of "no new taxes" (spoken through a water glass of course, Mr. Harper has done nothing if not learn from his American idols, no way he'd let his lips be seen making those words) broken when the Feds pay the province to raise the taxes?

    Or is that enough semantic distinction so that the Haper supporters heads don't simply implode on the cognitive dissonance?

  2. I'm quite surprised Deficit Jim has lasted as long as he has, I've come to believe keeping Jim in his cabinet position is Harper's way of kneecapping a potential leadership rival. Jim's blunders are many and almost took down the Con's last December but Harper still keeps this incompetent in place? Why? To see if Jim will eventually get it right?

    • Perhaps he knows where the bodies are bound, whipped, electrocuted, and buried.

      • Considering the guy was an ambulance chaser in his previous life, this would not surprise me in the least!

  3. Perhaps he knows where the bodies are bound, whipped, and buried.

  4. ”They asked Jim to stop talking about (the tax) so much because it's not helpful,”

    No matter what topic gets inserted in place of "the tax", the sentence still rings true!

  5. It is to bad the full story about the Ontario HST is not referenced in discussion around this issue. With the cuts made else where in the tax code of Ontario and support for low income that is part of the package it is not as regressive as those playing on peoples fears would like us to believe. I am disappointed in the NDP as I see the overall effect on taxation to actually be in line with their objectives of a more progressive tax system.
    But then I live in a city where the electorate bought " Zero means Zero" so I shouldn't be surprised at the gullibility of people or the cynicism of politicians.

    • Shush, you'll upset all the Liberal posters!

      • Shush now, Dakota. You're boring.

  6. It is to bad the full story about the Ontario HST is not referenced in discussion around this issue. With the cuts made else where in the tax code of Ontario and support for low income that is part of the package it is not as regressive as those playing on peoples fears would like us to believe. I am disappointed in the NDP as I see the overall effect on taxation to actually be in line with their objectives of a more progressive tax system.
    But then I live in a city where the electorate bought "[i] Zero means Zero[/i]" so I shouldn't be surprised at the gullibility of people or the cynicism of politicians.

  7. I must admit, I'm pretty clueless when it comes to the debate surrounding the HST*, so I was hoping someone could, in a spin-free manner, explain to me what exactly are the pros and cons of a harmonized sales tax? And why would the Federal gov't give such a massive compensation to the Provincial gov't? What is that payment supposed to compensate for?

    *Heck I immediately think Hunter S Thompson when I see the initials HST ;)

    • Right now, there is a 6% goods and services tax applied to pretty much all, as the name indicates, goods and services. This is a "value added tax" which means it is meant to be a direct flow through tax to the end beneficiary and user of a good. It replaced of a myriad of taxes the consumer never saw (manufacturerer's tax, etc.) but added to the cost of the good. Now any business that pays GST on a purchase can get an input tax credit for the same amount for goods that will end up being passed along to a consumer. It eliminated taxes on taxes. But it also taxed services which were not taxed previously.

      We also have, in Ontario, an 8% provincial sales tax. This is only on goods but it is taxed on each purchase, there is no flow through or input tax credit (simplifying a bit here).
      [CONT…]

    • I understand for the most part business is for it because it simplifies the record keeping and reporting part as they only have to do it once rather than twice. What is unclear to me is what are the differences in items that are exempt. The PST supposedly has more exemptions than the GST does but I have yet to see a detailed explanation of the differences. Anyone have a link to a good article spelling out exactly what items would be taxed under HST and made more costly verses the old GST/PST system?

  8. […CONT]

    "Harmonized" is in my view a bit misleading because one of the two taxes is actually eliminated. Harmonized sales tax means there will be no more provincial sales tax but the GST is increased by 8% and that amount is passed back to Ontario. So the GST regime – with taxes on services that we don't have in Ontario, but also the flow through that makes taxes more efficient and ultimately lower – is adopted as the sole tax on sales of goods and services in the province. There is also only one collection and enforcement bureaucracy. While on some goods and on all services, more tax is being paid, the overall tax burden (as the argument goes) does not change that much.

    • Hmm, interesting. So does this mean that the Province of Ontario cedes the collection of sales tax to the Federal gov't with the understanding that the monies collected equaling 8% will be returned to the Province in the form of a transfer payment (of sorts)?

      Does it not seem like a particularly motivated Federal Gov't (say one with an exceptionally strong Majority) could conceivably withhold that money in the guise of paying down a deficit (for example)?

      It seems, on first blush, that the Provincial government is ceding a fairly important power of taxation for no real reason (I suppose this is where the $4.3B in compensation comes into the picture)

      Am I reading this right?

      • Business taxes are lowered and put directly on the consumer.

        It leads to increased investment and a booming economy … of
        which the Atlantic Provinces are a prime example. (:

      • No different really than the Income tax regime. Except for Quebec, the Feds collect income taxes on behalf of the province. The rate is set by the Province and the Feds just pass it along.

      • No, the provincial government uses the federal government to collect its income tax, and has for years. It is an administrative streamlining and doesn't mean the ceding of any taxing rights. The provincial government could, I believe, change the 8% to 10% or 4% if it wanted. One thing to keep in mind with the harmonized HST is that if you pay GST on it, you will pay HST on it. That means things like . . . HOMES, which is obviously a huge hit that will come as a rather nasty shock if you're not prepared for it. Oh, BTW Ted, the GST is currently at 5%.

        • Ooops, my bad.

          You are correct about the setting of rates. That is an agreement reached between Harper/McGuinty, Harper/Campbell, but the amount the agree on is collected by the feds and passed on to the provinces.

          You are also right that many things that currently don't get taxed will now be like new homes (now 5%, next year 13%) and services. At least they don't currently get directly taxed. They are taxed, the materials used to build the home is taxed, but now those taxes won't be hidden and built into the final cost of the home.

          But I don't think it is accurate to say that it is just administrative streamlining and nothing is ceded. This is now federal legislation which means exceptions, carve outs, interpretation, bulletins, rulings, prosecutions and enforcements, amendments, etc. are all now within the federal pervue.

          • About this whole idea of hidden taxes being removed:

            Wasn't this also a major justification for the GST? I'm curious (as I was far too young at the time to notice), but did this actually happen? Was there a 7% drop in retail prices on GST taxable items, or did prices remain at the same level and retailers just made a further 7% profit on those items?

          • Pretty much the latter. Out here in Alberta I remember the prices bumping up but stores putting out the white signs with "Price includes 7% GST" in green lettering. It didn't take very long for those signs to disappear and be replaced with "Please add 7% GST", the prices didn't drop, however.

          • Pretty much the latter. Out here in Alberta I remember the prices bumping up but stores putting out the white signs with "Price includes 7% GST" in green lettering. It didn't take very long for those signs to disappear and be replaced with green signs saying "Please add 7% GST" in white lettering, the prices didn't similarly invert, however.

          • Well, if you put it that way, and further below as well, of course they have ceded to the Feds. What a dummy I am for only looking at the rates. Thanks for educating me, though I shouldn't have needed it. And I always wondered what was in it for the Feds, other than perhaps an administration fee or something. Penalties and interest can add up!

      • I think there are lots of good criticisms of the HST, but to be fair, I don't think this is one of them. It is written into an agreement made by Harper and McGuinty and Harper and Campbell, and would not be different from provincial surtaxes that get collected by the feds and transferred over to the provinces. I would be very very surprised if any federal government ever dared to keep that money.

        Having said that about collections and the setting of the rates, the provincial government has indeed ceded governance over this tax to the federal government.

        The HST is a federal tax enacted under federal legislation (amendments to the Excise Tax Act) that Harper would introduce. The federal government therefore decides on all policy, enforcement and interpretation matters (like what is included/excluded, how a good or service gets categorized under the regulations, etc.). They collect but they also keep all fines and late payment interest.

    • Which makes sense in a manufacturing economy. In a knowledge or service based economy, however, this is a general increase in taxes.

      I don't know enough about Ontario's economy to say which way this balances out right now.. but I do know that as our material needs are fulfilled, service and knowledge based economies come to the fore.

  9. Thanks for the clarification everyone!

    One further question – does this mean that items that are currently PST exempt will now be taxed in full? Doesn't this include some pretty significant things like food, clothes, prescriptions, and electricity?

    • Some info here. I still need an executive summary of what the specific changes would be in Ont.

    • "does this mean that items that are currently PST exempt will now be taxed in full? Doesn't this include some pretty significant things like food, clothes, prescriptions, and electricity?"

      Yes and no. If there was a PST exemption, there is no PST now and there is no exemption for things that were exempted under the provincial tax legislation. Indeed, there are clearly lots of things that are taxed by GST/HST that had no PST (most especially services and homes). However, there are lots GST/HST exemptions that match PST exemptions (like groceries) and even some that were not exemptions.

      It is a very tricky business to determine what is exempt and what not. A large bag of potato chips is considered groceries (not GST/HST), a small bag is considered a snack (+GST/HST). And the regulations have not been drafted or approved yet so we can't really say for certain yet all that will be in and all that will be out.

  10. Should have added that a basic rule of thumb is all that currently has GST applied will have HST applied.

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