Manitoba serious about new tax

OTTAWA -- Manitoba might be the next province to accept Ottawa's long-held request to bring the provincial sales tax in line with the federal GST.

It could mean substantial tax savings for Manitoba businesses but a significant cost hike to consumers who would pay more tax on a host of products currently exempt from the tax, such as gasoline and new homes.

Finance Minister Jim Flaherty on Tuesday dangled billions in front of the three provinces that have yet to heed his call to harmonize PST and GST.

A spokeswoman for Manitoba Finance Minister Greg Selinger said the province is looking at the offer.

"We will be giving this some serious review," she said.

Selinger was unavailable.

It's a change of heart for Manitoba. Selinger had until now said Ottawa offered nothing that would make the idea of harmonizing the two taxes attractive to Manitoba.

He has said repeatedly that consumers would pay more if Manitoba were to introduce a harmonized sales tax, because there are a number of items on which GST is charged that PST is not, such as kids' clothes and gasoline.

He also said he was leery of shifting the tax burden from businesses to individuals. Harmonizing sales taxes saves businesses billions in reduced administrative costs and lower taxes on inputs.

Harmonization simplifies the tax system and means a receipt would include one tax charge, the HST, rather than two separate lines for GST and PST. In Manitoba, it would likely be charged at 12 per cent -- a combination of the seven per cent PST and the five per cent GST.

Quebec, Newfoundland, New Brunswick and Nova Scotia have long had harmonized sales taxes, while Ontario and B.C. both announced this year they would implement an HST on July 1, 2010. Alberta has no provincial sales tax, leaving Saskatchewan, Prince Edward Island and Manitoba as the only holdouts against tax harmonization.

Flaherty said Tuesday transitional funding would be available to the three provinces if they switched to the HST.

Ontario and British Columbia both signed lucrative deals that will give them billions of dollars to merge their provincial sales taxes with the federal GST. Ontario is getting a one-time payment of $4.3 billion.

Flaherty said he's talked to the provinces "from time to time" about tax harmonization, but it's up to them to decide if they'll sign on.

Manitoba has in recent years started charging PST on things such as legal fees and professional services by architects and engineers, which moved the province closer in line to the GST.

It's unknown which other items might be subject to PST under a harmonized tax in Manitoba. Both Ontario and B.C. said they would continue to exempt items such as diapers, kids' clothes, books and feminine hygiene products.

But gassing up in Ontario or B.C. will cost more under the new HST, as will buying a new home, or getting a haircut. All of those items were exempt from PST in those provinces but will be taxed under the HST.

Flaherty has long lobbied for a harmonized tax arguing it cuts costs for businesses, increases investment and adds new jobs.

A report by the C.D. Howe Institute in 2007 said in the three Atlantic provinces that adopted HST in the 1990s, per capita investment rose by more than 11 per cent, total investment in machinery and equipment increased by more than 12 per cent annually and consumer prices fell.

Last month, B.C. Premier Gordon Campbell called harmonizing the PST and GST "the single-biggest thing we can do to improve B.C.'s economy," when he announced his province would harmonize taxes.

The B.C. government estimated businesses in that province will save $2 billion a year from the combined effects of the new HST.

The savings come in part from reduced administrative costs. As well, businesses receive a rebate from Ottawa for at least some of the GST paid on input costs but no similar rebate is offered for the PST. They will receive a rebate for both under the HST.

The Ontario Chamber of Commerce estimates those savings to Ontario businesses will exceed $1.6 billion annually.

The pro-harmonization lobby argues those savings will be passed onto consumers, and that most of the products we think are PST-free, actually have the tax hidden in the base price because businesses must pay sales tax to produce those goods.

But anti-harmonization groups say consumers are unlikely to see a drop in prices.

A Nova Scotia government study suggested consumers paid $84 million more in provincial sales tax in the first year after that province adopted a harmonized sales tax.

The Ontario Chamber of Commerce is estimating the new HST in that province will cost consumers an additional $905 million.

To offset the cost to consumers, Ontario introduced a range of measures, including sending out cheques of up to $1,000 to individuals earning less than $80,000 or couples earning less than $160,000 annually. There will also be a new refundable sales tax credit for low- and middle-income earners and cuts to personal income taxes.

B.C. is offering a refundable HST credit of $230 per family member for individuals with incomes up to $20,000 and families with incomes up to $25,000.

It will be paid quarterly at the same time as those families receive their current GST rebate cheques.

-- with files from The Canadian Press

mia.rabson@freepress.mb.ca

What Manitoba has to gain

Manitoba businesses would likely profit from a harmonized sales tax. Administrative costs would decline because they would need to only collect one tax instead of two. Also, businesses currently receive a rebate from Ottawa for some GST paid on input costs but no similar rebate is offered for the PST, so they would likely receive a rebate for the whole amount if the taxes were merged.

Manitoba would also get a lump-sum payment from Ottawa to help offset losses to the provincial government from changes to the PST. Ontario, for example, will get $4.3 billion for its decision to switch to a HST. What Manitoba has to lose

Consumers could pay more for transactions such as buying and selling some homes or filling vehicles with gas. As it stands now, there is no PST charged on purchases of new homes, real estate commissions on home sales and gasoline sales.

Manitoba currently doesn't charge PST on books, kids' clothes and diapers, but it's likely Manitoba would follow Ontario and B.C. and continue to exempt these items from the provincial portion of the HST.

Republished from the Winnipeg Free Press print edition August 5, 2009 A3