Winnipeg: The Frontier Centre for Public Policy released today “Forecasted Effects of Reducing the HST Tax Rate by Two Percentage Points: The Case for Ontario to Follow British Columbia,” authored by University of New Brunswick Professor of Economics David Murrell.
In this paper, Murrell calculates the anticipated effects of moving from the old provincial sales tax (PST) to the new Harmonized Sales Tax (HST) in Ontario and in British Columbia, assuming that the sales tax rates are reduced. The British Columbia government has already committed to reducing its HST by two percentage points by July 1, 2014 and with this promise, support for the HST has increased. Since the government of Ontario has kept the provincial portion of its HST unchanged at 8 percent, our calculations for Ontario are hypothetical as well. We assume, first, that Ontario reduces its HST rate by two percentage points, and second, that it reduces its HST rate by three percentage points, to equal the forecasted 10% HST tax rate in British Columbia.
“The HST tax cuts are fiscally manageable,” says Murrell, “if modest expenditure cutting were to take place in the two provinces.”
Our findings are as follows:
• For British Columbia, the tax savings – including the accompanying personal income tax cuts – are about $255 per family. Consequently, a “no” vote in the HST referendum (where citizens vote to keep the HST) means that households will continue to benefit from the tax cut.
• For Ontario, the tax savings from a 2-percent HST tax-rate cut (and the ongoing personal income tax credits) would amount to about $320 per family. Should the province announce a 3 per cent HST tax cut, the total per household savings would amount to about $600.
These findings are consistent with the 1997 HST experience in Atlantic Canada. That year, the three HST provinces (New Brunswick, Nova Scotia, and Newfoundland and Labrador) witnessed a modest reduction in their respective Consumer Price Indexes (CPI). We conclude that for a government to earn voter approval for the imposition of the HST, the government must
(1) reduce sales-tax rates and
(2) undertake enhanced personal income tax credits and grants.
ABOUT THE AUTHOR:
David Murrell is a Professor in the Department of Economics, University of New Brunswick, in Fredericton, New Brunswick. He teaches public finance, regional economics and public policy. He received his Honours B.A. and Masters of Arts from University of Ottawa in the early 1970s. After working as a Research Economist at the Conference Board of Canada for seven years, he earned a Doctorate in Economics at Queen's University, Ontario. He started teaching at Queen's in 1983, and at the University of New Brunswick in 1985. Professor Murrell has published widely in economic policy and regional economics, including articles for Canadian Public Policy and the Canadian Journal of Regional Economics. He is a member of the editorial board at the Canadian Journal of Regional Economics.
Download a copy of Forecasted Effect of Reducing the HST Tax Rate by Two Percentage Points: The Case for Ontario to Follow British Columbia in HST Reduction HERE.
For more information and to arrange an interview with the study's author, media (only) should contact:
David Murrell, PhD
Tel: 902-421-1700 ext. #423
Marco Navarro-Genie, PhD
Director of Research