Province unveils 2009-10 budget

13 per cent harmonized sales tax announced for Ontario

Tuesday, April 7th, 2009

The Ontario government has announced plans to combine federal and provincial sales taxes into a 13 per cent harmonized sales tax by July 10, 2010.

Premier Dalton McGuinty presented the 2009 budget yesterday afternoon, announcing an investment of $34 billion in infrastructure in addition to tax cuts and sales tax reform.

Currently, the federal goods and services tax is five per cent and the provincial sales in Ontario tax is eight per cent, but many products and services are exempt from the latter.

Certain goods, like books and children’s clothing, will remain exempt from PST. However, previously exempt products like prescribed medications and some food products will be charged under the harmonized sales tax.

Ontario Finance Minister Dwight Duncan believes harmonizing the taxes is a necessary step to aid the struggling Ontario economy.

“With our comprehensive tax reform, we’re making Ontario stronger and more competitive and that will help our families and businesses when prosperity returns,” Duncan said in a statement.

The effects of this year’s recession on the Ontario economy are undeniable; for the first time in its history Ontario will receive national equalization payments from the Canadian government. The provincial government will receive $347 million for 2009-10 to maintain its provision of services to residents.

The national equalization program was instituted to ensure all provinces are able to provide similar levels of social services based on comparable levels of taxation.

“[The tax harmonization] will not benefit Ontario’s economy immediately, but there will be long-term benefits,” Western economics professor Kul Bhatia said.

“[They’ll save] on the cost of administration because there will be no need for two departments for taxes.”

As part of the tax reform, Ontario businesses will receive numerous tax cuts, including reduced taxes on equipment bought for use in manufacturing industries.

Bhatia added tax harmonization will simplify transactions because purchases will include one tax instead of two. However, while businesses may become more competitive, he also admitted consumers may initially feel the crunch because there will no longer be many PST exemptions.

“Low-income families have support systems like assistance transfer payments and welfare,” Bhatia said. “There will be short-term consequences [...] but the province can help those directly affected.”

University students will also feel the effects now that food products like milk and prepared food purchases under four dollars will be subject to an additional eight per cent tax. They will get a break on textbooks, however, which will remain exempt from the PST.

Emily Scrimgeour, a fourth-year management and organizational studies student and employee at Mustang Alley, acknowledged student concerns but does not think harmonizing taxes will significantly affect retail sales.

“Milk and juice are some of the most popular items, so I don’t think [the harmonized tax] will affect our sales too much. I don’t like the idea of paying tax on fruit, but I’ll still do it.”

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