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Premier considering harmonizing taxes

Ottawa has been pushing for it, four other provinces have done it, and now Premier Dalton McGuinty isn't ruling out merging the Ontario and federal sales taxes

TORONTO - Ottawa has been pushing for it, four other provinces have done it, and now Premier Dalton McGuinty isn't ruling out merging the Ontario and federal sales taxes when his government tables its fiscal plan for combatting the global recession.

A merger of the GST and provincial sales tax would increase the price of some goods for consumers, McGuinty acknowledged Tuesday.

Still, he said voters would eventually understand and cited his government's controversial health tax - contained in the 2004 budget despite a solemn election vow not to raise taxes - as an example of an unpopular but necessary measure.

"What Ontarians want us to do is to do what's right," McGuinty said ahead of Thursday's budget. "I don't think that we've been put in a position of government to choose what's easy."

Federal Finance Minister Jim Flaherty has long pushed Ontario to merge the two taxes, saying it will work with all provinces interested in harmonization. Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador have already harmonized their sales taxes with the GST.

While he hasn't made a final decision on the issue, McGuinty said he has spoken to numerous business groups who advocate merging the taxes to stimulate the sagging economy.

Harmonization advocates say businesses would get a refund for the provincial portion of the tax that they pay on equipment and materials used to make their products, reducing production costs. A merged tax would also cut down on the time business spends calculating sales tax.

The Ontario Chamber of Commerce has estimated merging the taxes would save companies about $100 million a year, but acknowledges the price of some household goods would increase in the short-term.

BMO economist Doug Porter said while harmonization seems onerous, ultimately it is a good thing for the economy.

McGuinty said Tuesday his government must do what is needed during the current crisis.

"You'll recall at the time of our new health premium - that was a real challenge for us," McGuinty said.

"We had some time to explain to Ontarians (that) it was about raising the necessary revenues so we could invest in better health-care for all Ontarians.

"They accepted that in the end."

Critics said the move will hurt families already struggling to make ends meet, citing changes that would include a $1.76 increase for diapers, $1.04 more for girls' shoes, and a 72-cent hike for children's vitamins.

Provincial NDP Leader Andrea Horwath said merging the taxes "will nickel-and-dime families" and have a disproportionate impact on women and parents.

"In these economic times we know that families are already at a breaking point," she said.

"This is not the right time to be monkeying about with the tax system, it's time to focus on jobs and getting families back to work."

Merging the PST and GST would require co-operation with the federal government since it would reduce provincial revenues and increase the cost of household goods not subject to the provincial tax.

The PST, at eight per cent, applies to more goods and services than the five per cent GST. By eliminating the PST and creating a harmonized tax that mirrors the GST, fewer things will be taxed provincially, affecting Ontario's revenues in several areas.

Goods that are not subject to the provincial tax would then be taxed under the GST.

The Chamber of Commerce argues that consumers will ultimately benefit from the change, because business cost savings would translate into lower prices down the road.

Businesses pay both the provincial sales tax and the federal goods and services tax on equipment and machinery, as well as on daily operating costs such as electricity. They can only claim a tax credit for the GST.

Any plan will take at least a year to get rolling, however, since it involves complicated negotiations with Ottawa, said Len Crispino, president of the Chamber of Commerce.

"It's unlikely we're going to be into the actual system for perhaps a year or a year and a half," Crispino said.

"But what that will do is provide confidence to the business community and to send a message to the foreign investors that this is a friendly place to invest."

In 1997, harmonization more than doubled tax on gasoline, heating oil, privately sold used cars and other items in the Atlantic provinces.

 
 
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