e-brief Sales Tax Reform in Ontario: The Time is Right By

• Main Author: Finn Poschmann
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2009
• Subjects: Newfoundland
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.496.6809; http://www.cdhowe.org/pdf/ebrief_75.pdf

Canada’s federal government, since implementing the Goods and Services Tax in 1991, has repeatedly urged the provinces to reform their own antiquated retail sales taxes. New Brunswick, Nova Scotia and Newfoundland and Labrador did so in 1997, by signing on to the Harmonized Sales Tax (HST), which the federal government administers on their behalf.1 Ontario’s economic outlook would much improve if the province now joined in, by eliminating the province’s destructive retail sales tax. The time is right because the province’s need for long-term thinking about how to improve the investment environment, and the outlook for productivity, wages and jobs, has never been clearer. Were Ontario to eliminate its retail sales tax and adopt a fairer value-added tax, such as the GST, construction investment would increase, as would business spending on machinery and equipment. The reason is that the tax burden on business capital investment would drop significantly. Labour productivity would improve, and with it workers ’ wages. The province’s economic potential, including export sales, would improve permanently by half a percentage point – a tremendous boost in provincial income. After discussing the economic benefits of reform, now, in Ontario, this e-brief examines typical objections to reform, including concerns about the speed with which those benefits would flow, the impact of reform on consumer prices and on low-income families as well as particular business sectors. In each case, I outline policy responses that would mitigate the perceived downsides to change. I N