Dec 15, 2009

HST And Family Budgets


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:

  1. 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
  2. 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.

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