The Ontario HST: a counter-intuitive remedy?

The Ontario-based 25-in-5 Network for Poverty Reduction met in the basement of a community agency this week to hear some radical news. U of T’s Ernie Lightman and Andy Mitchell were at the front of the room. Economist Hugh Mackenzie had joined them. Policy wonk John Stapleton came in soon afterwards. Various funders, networks and advocacy groups sat around the room. Now Magazine’s Alice Klein sat at the side.

Lightman explained that this was a preliminary discussion rather than an off-the-record one.

We were there to discuss the Harmonized Sales Tax (HST). Despite the hue and cry against it, Mitchell and Lightman’s analysis was showing that it is a progressive tax.

When the HST was announced, Lightman, habituated by a long history watching the Department of Finance and Treasury Board, was an early critic. Soon after he was interviewed one morning on CBC radio, Finance Minister Dwight Duncan followed with his own rebuttal: university professors shouldn’t speak about things they didn’t know about, Duncan said.

Lightman, to his credit, took up Duncan’s challenge. He and Mitchell, a stats master, met with Treasury Board staff, gathered some data and began the number-crunching. The preliminary results have induced them to rethink their original position and to broaden the discussion to this audience.

Mitchell’s analysis looked at the announced changes to the HST, personal income tax and Ontario Tax Credits and their combined effect on economic families (which includes singles too). The calculations did not include the transitional “bribe”. Here’s what they found:

  • While the overall effect on families is a wash, the HST’s impact is progressive. On average, low income families will benefit from the changes; middle income earners will come out neutral; and, high earners, over $100,000, will see an increase in their total tax burden.
  • Single parents should, on average, do better under the HST, whatever income bracket they are.
  • Couples with children should also do better with the HST. (Families with children will likely do even better than projected because of point-of-sale exemptions on items such as books and children’s clothing.
  • Singles who earn under $50,000 – $60,000 should benefit from the changes.
  • Only seniors showed a more mixed result, probably because of a range of reasons.

Now, Mitchell and Lightman cautioned this was a projection using SPSM Stats Can data. It does not account for any changes in spending habits which may occur after the changes are brought in. So, for instance, if a consumer decides to a get a haircut less frequently because of the higher costs, then these numbers may shift.

As the gathered group began to thresh through what this meant, a few obvious advocacy positions emerged.

  1. If low income people are to face higher day-to-day costs through the HST, the tax credits will have to be paid more frequently throughout the year so that, as Voices from the Street Mike Creek, reminded us, they didn’t run out of money even earlier in the month. Small, regular payments are better than a few large lump sums paid months apart.
  2. Because more tax credits and income benefits will now be flowing through the tax system, community-based tax clinics will continue to be a vital means of ensuring low-income people are filing returns so that they can benefit from the credits they deserve. Community agencies will need additional resources to improve the take-up.
  3. As the changes are currently structured, young income-earners are more likely to come out better. The impact of these changes on seniors, particularly low-income ones, should be looked at more carefully to ensure they are not left behind.
  4. Ontario tax credits are now fully indexed and so are protected from inflationary erosion. They are however always be vulnerable to a government’s whim to move to partial or zero indexing. Full indexation is vital.

Hugh Mackenzie had the final part of the discussion, framing the importance of taxes because they boost “the robust fiscal capacity of government which allows government to drive services.” And, if services are boosted, as his work with Richard Shillington last spring in A Quiet Bargain showed, the poor were more likely to receive an equitable share. When it’s implemented, this “tax-grabbing” change introduced by the Ontario Liberal government may just raise enough millions and billions to do that.

The HST sounds like a good deal to anti-poverty activists, after all.

25 in 5 has posted its budget submission on the HST, made on December 7, 2009, by Co-chairs of the 25 in 5 Network for Poverty Reduction: Michael Creek, Voices from the Street and Greg deGroot-Maggetti, Mennonite Central Committee Ontario.

The Canadian Policy for Policy Alternatives published, on December 14, Ernie Lightman’s HST analysis: Not a Tax Grab After All: A second look at Ontario’s HST. Update: January 6, 2010, The report has been revised and re-released

8 Responses to “The Ontario HST: a counter-intuitive remedy?”

  1. The problem with taxes in this country is that they never go to where they’re supposed to. It’s all tossed together into one big melting pot and gets distributed out from it, with little to no accountability on spending.

    The worst example of this is the GST. It was introduced to help the health care system, yet it seems that our health care is no better (if not worst) than it is before the GST.

    Politicians just don’t get it. Why should they?? They’re not number crunchers .. but they don’t listen to number crunchers either, they only care about their political careers (which in many cases is counter intuitive to the overall good of the country)

    In the US, states that have little to no taxes (e.g. New Hampshire) are financially better off than those that are heavily taxes (e.g. New York, California) Why can’t they learn that more taxes only cause more harm?

    Lastly .. about family income. Their numbers don’t add up. “singles that earn under 50-60K ..” Well, what happens when 2 of these singles marry? Guess what, now they earn 100+K. Suddenly they’re considered a “high tax bracket” ? I don’t know any couple with a new mortgage + day care for 1 child + living in downtown Toronto making only 100K family income that consider themselves “high tax bracket”. If anything, they all live paycheck to paycheck.


  2. The report has vanished.


  3. When will the tax increases end? We as Canadians pay far too many taxes.When ever we turn around we are hit again with yet another tax which will never go away..We as Canadians have no say.I would like a chance to say no to the HST..but like everything else we were told it was in place..



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