Selinger must implement HST

The Winnipeg Chamber of Commerce doesn't believe there "might" be a disadvantage to business -- there "would" be a disadvantage to business -- which is why we believe Premier Selinger has no choice but to move forward on the HST.

A harmonized sales tax would combine the five per cent federal goods and services tax (GST) and the seven per cent provincial sales tax (PST) into a single, 12-per-cent tax. The new combined tax would apply to more items than the existing PST, which would lead to increased prices for some goods and services unless measures are taken to offset the increases through exemptions or credits.

Moving to an HST also will lead to a simplification of the tax system and reduce compliance and administrative costs on businesses and government by combining paperwork and related efforts into one system instead of two, which would reduce the costs of goods and services.

In addition, businesses currently pay the PST on many inputs, including capital goods, related to the production of goods and delivery of services.

Moving to an HST will allow businesses to recover the input costs on materials and services that they purchase to produce further goods or services directly or indirectly sold to end-users; thus, they are able to price their products, including those that are exported, more competitively.

Once Ontario and British Columbia made the commitment, it was obvious that Manitoba needed to follow suit. The CD Howe Institute recently compared provincial tax competitiveness with and without harmonization. It was glaringly clear that Manitoba will be at a significant disadvantage without a harmonized tax, which will do nothing but keep investment from coming to our province.

In Budget 2009, the federal government stated: "If all five provinces currently imposing an RST (retail sales tax) were to adopt harmonized value-added taxes, the marginal effective tax rate (METR) for Canada on new business investment would be reduced by more than seven percentage points."

A reduction of this magnitude would have a significant positive impact on the competitiveness of Canadian businesses.

According to a recent Canada West Foundation report, if Manitoba were to adopt an HST, the METR would be 23.40 per cent instead of the current 32.50 per cent -- which will be the highest in Canada after Ontario implements its HST.

For a province that already has to deal with the much hated payroll tax, any further tax disadvantage will be difficult to overcome.

The Chamber's Selling Winnipeg to the World initiative, which is focused on attracting business investment, has brought us very close to how international companies make investment decisions and the importance of a competitive tax environment is obvious.

What government needs to understand are the ramifications that doing nothing will have on the Manitoba economy, business growth, job creation and competition with other jurisdictions.

When the cost of doing business and the more favorable tax environment in other provinces puts Manitoba at a disadvantage it provides a disincentive to businesses that may be in the process of relocating here -- but also can provide an impetus for local businesses to look elsewhere.

The Winnipeg Chamber of Commerce believes it's imperative that we make the right decision and look at the long-term implications of the status quo. We understand the apprehension but also believe that we need to move forward with the HST and learn from the approach of B.C. and Ontario to ensure a smooth transition. Here are our thoughts on what should happen from here.

The provincial government should immediately commit to harmonizing the PST and GST with implementation to take place July 1, 2010, to bring Manitoba in line with both Ontario and British Columbia.

An all-party committee of the legislature must be established to conduct a series of public consultations to ensure that the details of implementation are fully discussed and greater awareness of the impacts, both positive and negative, can be assessed. Details of a "Made in Manitoba" solution for harmonization would be confirmed, including a small but comprehensive list of exemptions.

Exemptions to consider would include: consumer products in support of families on items such as children's clothing and footwear, diapers, books and more; a rebate of higher taxes on new housing; credits for financial services (mutual funds), municipalities, academics, schools, hospitals charities and not-for-profit organizations.

Low-income consumers could be protected through an HST credit and potential tax reductions.

There is no question that businesses in Manitoba will benefit greatly from a move to a harmonized sales tax policy as they will be able to receive tax credits for their input costs and will also see a dramatic reduction in their compliance and administrative costs.

Even though businesses will see a reduction in their costs, the chamber views this as really an issue that will effect all Manitobans as it will result in opportunities for greater business expansion and investment, wage increases and job opportunities for all.

For consumers, the reduction in costs and increased competitiveness should result in lower retail prices, which has been the result in other jurisdictions.

No longer is it a question of whether or not Manitoba should do this. The risk of standing alone in the country with two separate rates that add cost to business is not one we can afford to take in a competitive global business environment.

We need to aggressively and strategically pursue the implementation of a harmonized sales tax -- a thriving economy is good for everyone

The Winnipeg Chamber of Commerce is committed to playing a significant role in working with Premier Selinger to ensure it is done in a collaborative manner which will inevitably lead to the best system for all Manitobans.

Dave Angus is the president and CEO of the Winnipeg Chamber of Commerce.

Republished from the Winnipeg Free Press print edition November 17, 2009 A10