TORONTO - Almost all Ontario residents will get a modest income tax cut starting in 2010, which many will be able to see for themselves when they get their January paycheques, Revenue Minister John Wilkinson said Wednesday.
Starting Jan. 1, the provincial rate on the first $37,106 of taxable personal income will fall from 6.05 per cent to 5.05 per cent as part of a larger package to help offset the impact of Ontario's controversial tax harmonization plan.
It also includes one-time relief cheques and new credits that will help ease the transition when Ontario merges its eight per cent sales tax with the five per cent federal GST next July, a move announced in the budget last March.
"We're not cutting the taxes for a few people who make a lot of money," Wilkinson said after a photo op with four young people to demonstrate how the tax changes would affect them.
"We're cutting the first $37,000 because that affects about 93 per cent of people who pay taxes, because the HST is coming into the whole province - not just for a few, but for all - and so that's why we picked the lower tax bracket."
The cut means Ontario will have the lowest personal income tax rate of any province in Canada, but for some, the impact may not be felt right away, Wilkinson acknowledged.
Workers who have their income tax deducted from their paycheques could see that gain offset by other payroll deductions - such as Employment Insurance and Canada Pension Plan - which start anew in January. Similarly, seniors who pay their income taxes at the end of the year likely won't feel the tax cut right away.
Kevin Gaudet, federal director of the Canadian Taxpayers Federation, said no matter how the government tries to spin it, the single 13 per cent tax will hurt already hard-hit consumers.
"The fact is that the HST is basically a pig," he said.
"You could put lipstick on it, you can dress it up, but it's still a pig no matter how you look at it. And come July 1, that's going to be a big impact for people."
Tax harmonization will increase the cost of many items that were previously exempt from the provincial levy, from gasoline to Internet bills, haircuts and real estate fees.
The government's move towards the HST has been bitterly opposed by the Progressive Conservatives and New Democrats, who say it will kick people when they're already down due to the recession.
"The more that taxpayers hear about the HST, the less they like it because it will be a tax grab on everyday goods and services," said Opposition Leader Tim Hudak, whose party staged a 44-hour sit-in in the legislature a few weeks ago to protest the new tax.
"I do worry that the McGuinty government, desperate to spin a good story out of this tax hike, will spend tens of millions of dollars from the HST tax hike on advertising campaigns to sell it."
The Liberals banned government-paid partisan advertising years ago, a move that appears to be a major roadblock in selling the HST through television, radio and newspaper ads, which would require the approval of the auditor general.
Wilkinson wouldn't say Wednesday whether the province plans to roll out an HST ad campaign financed with public dollars, but hinted that it's still a possibility.
"Now that we've actually not only passed the legislation here in Ontario, but also that the federal government has passed their legislation, now it is fair for us to make sure that we can explain to people how this impacts them, their families and businesses," he said.
So far, the government has tried to get its message out with a revamped website that explains the tax package (http://www.ontario.ca/taxchange), Wilkinson said. It will also monitor the site to see if the information is being picked up by the public.
Like Ontario, British Columbia will also harmonize its PST with the GST on July 1, something Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador have already done.
Federal Finance Minister Jim Flaherty, who has long advocated for tax harmonization, agreed to kick in $4.3 billion to Ontario and $1.6 billion to B.C. in a deal struck earlier this year.
Much of the federal cash going to Ontario will be used to fund government cheques of up to $1,000 for families and $300 for individuals in the first year of the HST to offset the pain.
Experts say lower and middle-income earners, as well as anyone buying a home for less than $500,000, will benefit the most from Ontario's package of HST-related tax changes.
Wealthy people will end up being taxed more because they tend to spend more money, and First Nations say they'll be worse off because they can't keep their point-of-sale exemption from the provincial portion of the new 13 per cent tax.
Business groups say it will slash costs by reducing red tape, as well as eliminate goods being taxed multiple times at different stages of production.
TD chief economist Don Drummond predicts businesses will likely pass the majority of the tax savings on to consumers, but the overall level of consumer prices will go up.
The HST will apply to a broader array of goods and services, which means the effective tax rate on consumption will rise by 1.5 percentage points and the overall level of consumer prices in Ontario will increase by 0.7 per cent, according to TD.