OTTAWA -- Harmonizing the provincial sales tax with the federal GST could end up costing the government over $400 million a year, Finance Minister Greg Selinger said Monday.
Selinger is still considering federal Finance Minister Jim Flaherty's ongoing request to meld the two sales taxes but suggested Flaherty is going to have to put more on the table than he has already because the impact in Manitoba could be very costly.
"It's a different situation in every province," said Selinger.
Selinger pointed to a 2008 C.D. Howe Institute analysis that suggests Manitoba revenues would plunge over $200 million a year under an HST. But that, he notes, is before a single cent in offsets for consumers is offered to help reduce the extra taxes consumers would pay under an HST. The offsets would come in the form of low-income tax credits and rebates to ensure the HST is revenue-neutral for municipalities, universities and colleges, and schools and hospitals. The C.D. Howe figure also didn't take into account any continued exemptions for things such as books and kids' clothes.
Those would cost a minimum of $200 million, bringing the impact on Manitoba's bottom line to over $400 million, the province says.
Flaherty has offered a one-time payment equal to 1.5 per cent of the total GST collected in Manitoba. The money is intended as an incentive to help the province through the costs of moving to an HST.
It's the same formula that made Ontario and British Columbia decide this year they will implement an HST on July 1, 2010. Under it, Ontario is getting $4.3 billion and B.C. $1.6 billion from Ottawa.
It's expected Manitoba's payment would be around $500 million, though neither Selinger's office nor Flaherty's would confirm that figure.
Selinger said so far the money Flaherty has offered doesn't take into account the ongoing money the provinces have to pay to make the transition to an HST easier on consumers.
Selinger said officials from both governments are discussing the issue over the summer but he said a lot more work has to be done to analyze the situation.
"This is not a slam dunk," said Selinger.
The C.D. Howe Institute analysis suggests individual consumers will pay 18 per cent more in sales tax under an HST. That's because there are a number of goods and services the province exempts from the PST that would no longer be exempt under an HST.
The province would only be allowed to continue exempting five per cent of the goods and services from the provincial portion of the tax. Those almost certainly would include books, diapers, kids' clothing and feminine hygiene products, as well as some form of rebate for new home construction.
But there are at least two-dozen service categories and a handful of goods that would not be exempted anymore, meaning they will begin to cost seven per cent more. They include everything from home heating and gasoline to personal services like haircuts and manicures, moving and storage fees, parking, movie and theatre tickets, even the cost of a funeral.
Although that means Manitoba will take in 18 per cent more from consumers under an HST, it will take in far less from businesses. The main feature of an HST is a rebate in sales tax for businesses for input costs and capital investments. The province says that would save businesses $520 million a year once the rebates are fully phased in.
Finn Poschmann, vice-president of research at C.D. Howe, said although the government revenues might be down a bit at first, moving to an HST is the only way to go.
"They help the economy run better," he said.
Harmonized sales taxes, also known as value-added taxes, are more transparent and improve investments in business, he said.
Currently, consumers might think they aren't paying PST on a haircut, for example. But the salon owner paid PST on the products used to cut the hair, and that is embedded in the price the salon charges the client.
"It's a cost consumers eventually have to pay," he said.
Tory Leader Hugh McFadyen said the C.D. Howe analysis is out of date and lacks information on more recent federal-provincial discussions regarding tax harmonization.
He wants the Doer government to come clean on what Flaherty is offering and what the benefit to Manitobans would be with a harmonized tax system.
"Otherwise it just looks like a cash grab," McFadyen said.
-- with files from Bruce Owen
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