A recent report from the CCPA national office analyzed the impact of tax harmonization on family budgets in Ontario. Not a Tax Grab After All: A Second Look at Ontario’s HST made a splash with its finding that the introduction of HST will be largely a wash for Ontario families, as most households would be made better or worse off by no more than $50 to $75 per year.
This is because Ontario’s HST was introduced as a piece of a larger tax package announced in the province’s 2009 Budget. The package includes sizable personal income tax cuts and a new refundable property tax credit, which will also apply to renters (on 20% of rent paid). What the CCPA study finds is that the additional costs of HST for low and modest income families in Ontario will be offset by the new tax breaks they got.
We have not done a similar study for BC yet, but there are two main reasons to believe that the BC results would be different:
- There are significant differences in what used to be covered by the two provincial sales taxes and what will be exempt by HST in the two provinces, so the additional bite of HST in Ontario and BC may be quite different; and
- BC’s HST is not accompanied by a big tax package – the income tax cut we got (the increase in the basic personal amount) is valued at $75 per individual with taxable income above $11,000.
It’s interesting to note that the low income HST credits are nearly identical in both provinces. The only difference is that Ontario’s maximum amount is $260 per person, while BC’s is $230. Given that Ontario’s HST is 13% and BC’s is 12%, this seems fair. However, the low income credit alone does not offset the additional costs of the HST for all but the lowest income families.
The BC government’s own estimates show that. Table 2 on p. 84 of the September Budget Update reveals that a single individual earning $25,000 per year will be $85 worse off after the low income rebates, and $13 worse off even after cashing in the personal income tax cut. A BC family of four earning $30,000 is expected to come out $550 ahead, but if they earned $60,000 per year, they’d be about $130 worse off all things considered.
Without Ontario’s personal income tax cuts, and in particular the new refundable property tax credit, there is nothing to offset the additional HST costs for many modest-income BC households.
The good news is that BC’s HST can be fixed. Refundable tax credits are one way to go: they ensure that even low income families that do not owe as much tax still get a benefit, in the form of a tax refund. Another way to do it is by expanding the low income HST credit so that more families benefit, as Marc proposes here.
It goes without saying that the homeless and other marginalized groups who do not file income tax returns will not benefit from relief offered through the tax system, which includes tax cuts and low income credits. CCPA’s report notes this fact, pointing out that these groups will be significantly worse off as a result of the introduction of HST.
However, non-filers represent a very small portion of the Canadian population precisely because all the refundable credits offered though the tax system serve as a strong incentive to file tax returns if one has low income. It is important to ensure that these marginal groups are protected through special measures outside the tax system, but it is not necessary to abandon the tax reform package because a fraction of a percent of the population would not benefit from it.
CCPA’s analysis shows clearly that the vast majority of low income households – those that file their taxes – will be made better off (or at least no worse off) by Ontario’s HST tax package. This, however, is unlikely to be the case in BC.
Keith // Dec 16, 2009 at 12:29 pm
“The good news is that BC’s HST can be fixed.”
Sadly, I suspect it is unlikely to be fixed. One constant in Liberal tax changes over the past eight years has been a shift in the tax burden down the income scale. The implementation of the HST simply continues that pattern.
P. Markunas // Dec 16, 2009 at 12:52 pm
For most of us not familiar with the complexities of the art of economics, this issue is difficult to be clear on. But my read of this commentary is that the BC HST could best be made more fair for lower income earners by giving up more government revenue. How then do we pay for healthcare, education, childcare, policing, roads, power generation etc?
Iglika Ivanova // Dec 16, 2009 at 5:12 pm
P. Markunas, you make an excellent point. We do need tax revenue in order to fund programs and services that British Columbians rely on, and tax breaks of any sort – be it tax cuts, rebates or credits – reduce the amount of revenue we collect.
The way out is to ditch broad-based tax breaks that apply to all and target tax cuts to low and modest income people. This was we can protect vulnerable families without compromising revenues.
Take, for example, the increase in the basic personal exemption to $11,000 that the government introduced in the September Budget Update. This amounts to a tax cut of $75 that all tax filers with incomes over $11,000 will receive regardless of whether they made $15,000 or $150,000. In fact, some of the low income households (esp. if they have kids) won’t even get that, because they already don’t owe any taxes. The cost of this tax cut is $173 million per year, which is estimated to be approximately equal to the extra money the Province expects to collect from HST, so voila – HST is revenue neutral for the government.
Instead, these $173 million would have been better spent on a refundable tax credit for low and modest income families that tapers off at higher incomes.
To quote from CCPA national office’s report (p. 15):
” [Tax credits] are typically of fixed value regardless of income level and are relatively more beneficial to those with lower incomes. If refundable, they will be paid even to those with no taxable incomes. Reductions in tax brackets or tax rates, on the other hand, are of no benefit to those who pay no tax and are inevitably regressive in impact and benefit the rich far more than the poor. Thus, in terms of their design of the income tax cuts, we feel the government’s approach leaves much to be desired.”
P. Markunas // Dec 16, 2009 at 8:57 pm
Okay, but the HST is a big tax cut for businesses, and this is engaging in a debate about who makes up the shortfall. Do progressive economists support reducing taxes for businesses, keeping lower income people at the status quo, and taxing the rich to simply maintain existing levels of government revenue (and would the rich, who control the political debate, ever allow that)? What income brackets are expected to bear the burden? How do we improve public services that have been stripped by cuts? Thanks for taking the time to respond.
P. Markunas // Dec 17, 2009 at 5:00 am
I’m in BC, so perhaps these points have already been raised in the Ontario discussion somewhere, but the CCPA report on Ontario HST concludes by saying: “Any fundamental tax change that yields
no big winners or losers is, almost by definition,
a good political tax change.”
1. There is a big winner – businesses and their shareholders. There is a big loser – government services
2. Table 19 of the Ontario 2009 Budget forecast shows declining spending on post-secondary education and training, children and social services sector and significant declining expenditures on “other programs” with the exception of health/k-12/justice, and billions more annually in debt servicing costs – all with ongoing multi-billion deficits
3. The CCPA report could be read as endorsing a tax change that does nothing to address the fundamental revenue shortfall
4. Further, the report could be read as reinforcing the notion that the primary objective for government is the reduction of taxes for someone, somewhere in the mix
5. Perhaps the report should have evaluated the impact of service cuts on low incomes before endorsing this tax cut
Ogada Jarateng // Dec 19, 2009 at 4:25 pm
It would be nice if we all focused on alternative revenue sources for our governments’ growing need of services. All our governments are afraid to think outside the box of taxing income, property or consumption. There are alternative: 1. We need leaders who have guts to rally Canadians to take full control of our non-renewable natural resources. 100% control by the the people in a cooperative with equal shares ownership and only engaging developers on contract basis. That’ll yield us some revenues. 2. Creation of Consumers Bank- lending at 10% max. on interest rates. 3. The Cities ownership by the residents- again, using the co-operative model. the residents buy shares in all the city public properties and share in all the revenues and profits. 4. Include the citizens in budgeting at levels. Have budget caps. people must vote on top priorities. Ban deficits, surpluses and debts. governments must live within their limits.
a lot to learn from Norway’s Natural resources management. thanks, Ogada
P. Markunas // Jan 6, 2010 at 11:00 am
I see that the revised report no longer includes some of the stronger language endorsing the Ontario implementation of the HST, and accept that the original intent of the paper, the technical exercise of measuring the effectiveness of the mitigation measures for consumers and individual taxpayers, remains the sole purpose. Has the CCPA considered evaluating the merits of the premise which motivated all this putting and taking, that a tax cut for big business is necessary? Has the CCPA considered conducting an analysis of how this initiative will impact government revenues and benefit or detract from the provision of important public services?