In Ontario, most purchases are subject to the 8% PST and the 5% GST. As of July 1, 2010 these two taxes will be replaced by the 13% HST. While this doesn’t sound like it’ll change anything because 8% and 5% add up to 13%, the HST is controversial.

The biggest single issue is that under the current system, the GST applies to more items than the PST. Although some things will continue to be taxed at 8%, some of the existing exemptions will be lost. The government claims that many manufactured items are taxed more than once during their making, and the HST will make them more inexpensive because this practice will stop. The manufacturers can then pass the savings on to the consumer. Further, businesses will find cost savings in having to deal with only a single tax rather than two. This will allow them  to hire more people and stimulate the economy.

I wonder, though. Is it so much more costly to get the paperwork right when most items are subject to a 8% tax and fewer are also subject to a 5%  tax than when most items are subject to a 13% tax and a few items are subject to only a 5% tax? It seems that it shouldn’t make a big difference but I’m no accountant.

Some things will cost more. On the Ontario Ministry of Revenue site, there’s an HST FAQ. One of the questions is:

Won’t certain things cost more?

For some items and for some people, it would mean price increases — and that’s why we would be providing $10.6 billion over three years in tax relief for people, which includes permanent personal tax cuts and direct payments to Ontarians.

Unfortunately, the price increases will be permanent though the three-year tax relief will end all too soon. And the government makes no promises that this relief will make up for the price increases.

The suggestion that more items being subject to tax is offset by a savings being passed on the consumers is dubious at best. If this whole exercise is revenue-neutral, why is Ontario reducing its provincial income tax rate by 1% for the first $37,106 we earn each year. Surely they’re not just going to give us $371.06 out of the goodness of their hearts. And what about the rebates? Families with an income of less than $160,000 will receive $3000 and individuals with an income of less than $80,000 will receive $900. If the government didn’t know it would be receiving more money, why would they feel the need to ‘sweeten the pot’ with this rebate?

Is the new tax scheme so much better than what we currently have? For the government, it certainly is. Why else would they be doing it? I don’t know how much of an effect it will have but I still find myself patting my pocket to make sure my wallet is there.

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