Harmonized Sales Tax Deserves a Closer Look in Manitoba

Brandon Sun, January 16, 2010 - David McConkey

Who wants to pay more taxes?

No one, of course.

But some tax changes are good. Like the HST (harmonized sales tax) for Manitoba. But both the NDP and Conservatives are against it.

Let`s start at the beginning. Manitoba has had a retail provincial sales tax (PST) since 1967. Canada has had a federal goods and services tax (GST) since 1991.

Every province, except Alberta, also has a retail sales tax. Most provinces have harmonized their sales taxes with the GST, combining them into the HST.

When Ontario and B.C. harmonize this summer, only P.E.I., Saskatchewan, and Manitoba will not have the HST.

Getting a bit technical for a moment: the HST (like the GST) is a value-added tax applied to a wide range of goods and services. The PST is a retail tax applied to many goods but few services.

The NDP government announced recently that Manitoba will not implement the HST. A report from Manitoba Finance, Sales Tax Harmonization in Manitoba, backs up this stand.

Of course, implementing the HST would be challenging. It would be the biggest tax change in Manitoba in decades. And the howls from consumers and business special interest groups in Ontario and B.C. show the political pitfalls.

But the HST is definitely worth considering. It is a superior way to tax; even the Manitoba Finance report does not dispute this.

On the most basic level, having only one tax instead of two is more efficient. And the federal government pays all the HST collection costs.

The HST would save the provincial government $12 million in administration costs every year. Businesses would save $40 million in such costs yearly.

One problem with the existing PST is that it unevenly and unfairly impacts consumer choices. For example, as Manitoba Finance points out, the PST discourages buying exercise equipment, which is subject to PST; and encourages buying a gym membership, which is exempt from PST.

Another drawback to the PST is that it is hidden in the cost of goods and services, even those exempt from the tax. An example from Manitoba Finance is the cost of buying a new house.

Although exempt from the PST, a $250,000 new house has an estimated $8,750 in PST buried in the price. This is because businesses pay the PST on their supplies as the house is constructed.

As well, the PST paid by businesses is added again and again along the supply chain. The final consumer ends up paying tax on tax. This “tax cascading” does not happen with the HST, as suppliers get back the tax they pay.

Because their tax costs are refunded, the HST is good for business. But Manitoba Finance glosses over the potential gains for the economy as a whole: lower prices, higher wages, and increased business investment.

Even if businesses simply pocket the gains as higher profits, the government would receive more income tax. Surprisingly, this important point is not mentioned in the Manitoba Finance report.

Consumers would pay more because the HST is applied to a wider range of goods and services. An answer would be to reduce income taxes. (GST-like credits would already protect low-income individuals.)

Shifting the tax burden from income taxes to sales taxes is good. It encourages productivity and makes shopping choices more fair.

As well, this shift is recognized as part of the move to a greener economy.

The HST also would be more appropriate for the Internet age.

Often goods purchased online do not have the PST added. This is unfair to local retailers who must charge the PST.

Having the federal government collect the HST on online shopping would create more of a level playing field for local businesses. It also would ensure the Manitoba government received its share.

The HST also would help Manitoba businesses that sell on the Internet. Manitobans face competition online not only from other Canadian businesses (most of whom enjoy the HST benefit), but also from others around the world.

More commerce on the Internet. A greener economy. Both will be increasingly important in the future, with the HST being a good fit. Yet the Manitoba Finance report has nothing to say about this future.

Promoting fairness, encouraging productivity, preparing for the future – let’s hear it for the HST.

And let’s hope we get more leadership on this issue from both the opposition Conservatives and the governing NDP.