HST Costs to Consumers Lower than Expected – School of Public Policy

chess not checkersTHUNDER BAY – A paper released today by The School of Public Policy at the University of Calgary, Professor Michael Smart of the University of Toronto determined that the burden of Ontario’s newly introduced Harmonized Sales Tax on consumers has been significantly lower than expected. While harmonization has caused some consumer prices to increase, coinciding income tax changes are offsetting these costs.

The HST applies to some purchases that were exempt from the old sales tax, but taxes paid on business inputs have been reduced. The study examined whether businesses are passing tax reductions through to consumers. Professor Smart concludes that “about two-thirds of new input tax credits are already reflected in lower consumer prices.” While the prices of a few items like cigarettes and some services did rise, the overall impact was to increase prices by just 0.6 per cent.

“With the compensating income tax changes also enacted by the Ontario government, the net impact of the reform for most families by the end of 2010 was a gain or very small loss in after-tax real incomes,” Smart concludes.

The introduction of HST in Ontario has generated substantial debate among consumers, businesses and politicians, with some arguing that the change has made consumers reach deeper into their own pockets. While the report acknowledges minor price increases, Smart indicates that these increases shouldn’t be a cause for concern considering the other benefits harmonization has brought Ontario’s families. “The HST reform was a change in the way we tax, but it wasn’t a tax grab, and it did not change people’s overall tax bills very much.”

Smart also states that even more benefits are expected, as businesses continue to adjust to the change and subsequently pass their savings on to consumers.

“It’s likely that the input tax cuts are getting passed on gradually,” as prices fall and wages increase, Smart said. “So the impact on after-tax real incomes will likely continue to improve over time.”

The paper can be found by going to www.policyschool.ca, then clicking “latest papers”.