The merging of goods and services tax (GST) with provincial sales tax (PST) into harmonized sales tax has been happening in various Canadian provinces over the past few years. However, this move has been perceived differently by the citizens. For example, in some provinces where the harmonized sales tax was adopted and implemented, the members of the public openly expressed their dissatisfaction with it through massive disapprovals and protests whereas in other provinces the harmonized sales tax received warm receptions.
This essay seeks to establish the main reasons and factors that led to the dramatic reactions that were witnessed in Ontario and in British Columbia when harmonized sales tax was introduced in the two provinces in mid 2010. Thus, the thesis of this essay is that there were more dramatic reactions to harmonized sales tax in Ontario than in British Columbia.
Harmonized Sales Tax
Harmonized sales tax refers a tax tariff in Canada that was introduced in July 1, 2010. The harmonized sales tax is a single value added tax that combines the services and goods tax (GST) with provincial sales tax (PST). According to the C.D. Howe Institute, the harmonized sales tax was introduced in order to create a more efficient and systematic tax system in Canada without necessarily increasing taxes on sales. People who advocate for and support it also claimed that replacing the tiresome, prohibitive and cumbersome provincial sales tax (PST) and goods and services tax (GST) systems with an instant, value-added tax system would greatly benefit consumers by making the tax system simpler as well as facilitate elimination of the tax hindrances and disincentives faced by many producers.
According to the Ontario Ministry of Finance, the harmonized sales tax became effective as from July 1, 2010. It is administered by the Canada Revenue Agency which collects the tax revenues and then remits appropriate amounts to all participating provinces in Canada. The harmonized sales tax usually differs across the participating provinces because each province is allowed to set its own rates for the goods and services tax (GST) and provincial sales tax (PST) within the harmonized sales tax. Harmonized sales tax is currently effective in five major provinces in Canada: Ontario, British Columbia, New Brunswick, Newfoundland and Labrador and Nova Scotia.
Historical Background of the Harmonized Sales Tax
The concept of harmonized sales tax appeared nearly two decades ago when the province of Saskatchewan combined its provincial sales tax with the goods and services tax. This move was made by the Progressive Conservative government under the leadership of Premier Grant Devine. However, it was greatly criticized and protested. For instance, during a general election in 1992, more than 55 percent voted against the government of Premier Grant Devine in favor of Roy Romanow of the New Democratic Party that had pledged to reverse the harmonization of the provisional sales tax and goods and services tax. Despite the harmonization being extremely unpopular amongst the people of Saskatchewan, other provinces in Canada also followed the suit and adopted the harmonized sales tax, for example, the provinces of Ontario and British Columbia entered into negotiations with the Government of Canada to allow them adopt the harmonized sales tax.
Public Reactions to Harmonized Sales Tax in Ontario and British Columbia
The introduction of the harmonized sales tax into the systems of Ontario and British Columbia received diverse and varying reactions from the public. The public reactions in Ontario were in one way or another dramatically different from the public reactions that were experienced in British Columbia. Some of the reasons or factors are discussed below.
In Ontario, there were mass protests and public outcries against the adoption of harmonized sales tax system in the province. This is because most people in Ontario believed that the adoption and implementation of the harmonized sales tax was a political affair rather than a move by the government to help solve the various socio-economic problems faced by the people. In contrast, British Columbia remained characteristically calm and peaceful when the government announced its intention to introduce the harmonized sales tax in July 2009. The implementation of harmonized sales tax in Ontario was considered as a low-key change with little or no benefits to the economy, thus leading to massive objections and protestations. Despite negative public reactions when the government of Ontario announced in March 2009 that it intends to adopt the harmonized sales tax system, legislatures in Ontario went ahead and passed it into law, thus making it one of the most abominated, repudiated and flouted tax system in the history of Ontario.
The people of Ontario also argued that the new harmonized sales tax system was discouraging economic investments in the province thus leading to more downsizing. For example, a major developer of housing facilities, University Heights Development Corporation that was planning to build new houses in Ontario called its plans off after the company learned about the harmonized sales tax system being adopted in the province. This is due to a market research analysis, conducted by the company, that found out that potential home buyers in Ontario would pay extra amounts totaling to sixty one thousand U.S. dollars due to the harmonized sales tax instead of an average cost of approximately seven hundred thousand U.S. dollars.
The political economy of Ontario was created through farming and light industries and had weaker trade unions. The middle class people were also polarized. In contrast, the political economy of British Columbia was created from more stable such as mining and forestry and also had stronger trade unions that could advocate for appropriate tax systems in the province. This difference in political economy stability of the provinces greatly influenced the reaction of the public towards the harmonized sales tax. For example, people from Ontario felt that the harmonized sales tax would not facilitate economic growth and development in the province, thus strongly opposed it. Moreover, the middle class people in Ontario also believed that it would greatly affect their living standards. Due to weaker trade unions, the people considered that their rights and interests could not be well served by the government of Ontario, thus opted to mobilize one another for public protests. Furthermore, Ontario is also the most populous jurisdiction in Canada. The large number of people in Ontario thus facilitated provocation and incitement amongst the people, thus leading to mass protests and vigorous public reaction.
Another factor was the strong political opposition in Ontario province. The campaign against the harmonized sales tax in Ontario was led by the opposition leader Tim Hudak who had a huge comprehensive understanding of the negative impacts to the Ontarians and strong political influence in the province. Thus, Tim Hudak was able to provide a viable alternative position against it as well as be able to stick to his critique of the tax system. Tim Hudak stated that here was no good-point, value or benefit in taxing consumption and productivity in Ontario. On the other hand, the campaign against harmonized sales tax in British Columbia was led by Mr. Vander Zalm who had little influence and lacked intellectual and political sincerity on the effects of the tax system on the economy of British Columbia. In addition, Mr. Vander Zalm was not holding any office by then, thus he had little followers and influence on the people of British Columbia. Vander Zalm was also reluctant to take a strong stand on the benefits of the harmonized sales tax to the people of British Columbia. This led to weak, indecisive and ineffectual reactions against the harmonized sales tax in British Columbia unlike in Ontario where Tim Hudak successfully managed to mobilize people to protest against the harmonized sales tax.
Moreover, the introduction of new tax system in Ontario also received dramatic reactions from the public due to the lack of adequate consultations with business people and consumers. John Drysdale claims that the Liberals Party in Ontario did not consult well enough before introducing the harmonized sales tax. John Drysdale further asserts that the party failed to consider and incorporate the viewpoints and suggestions of the people after it announced in March 2009 the introduction of the harmonized sales tax. Thus, full implementation of it came as a surprise to the people of Ontario thereby leading to dramatic reactions and mass protests. On the other hand, harmonized sales tax was introduced in British Columbia several months after exhaustive consultations with the business community and consumers had been conducted. As a consequence, the people of British Columbia were psychologically prepared for the adoption and implementation of the harmonized sales tax. Thus, there were minimal objections and protests against the new harmonized sales tax system.
Another factor that had led to massive reactions against the harmonized sales tax in Ontario was the use of transition funds received by the provinces from the federal government. In British Columbia, the transition funds were used to provide an exemption on gasoline at the point-of-sale whereas in Ontario the transition funds were transferred directly to the people using rebate cheques. The government of British Columbia had used the popular cheque method several years ago when it introduced the Carbon Tax in attempts to curb further increase in gasoline prices; thus the reuse of the transition funds to help in controlling the price was a well-timed and appropriate move to help consumers, hence it received a positive reaction from the people. On the other hand, Ontario failed to keep its promise of the cheque transfers. This led to impatience among people, hence leading to dramatic reaction. In addition, the harmonized sales tax was also expected to increase tax on gasoline and diesel from five percent to thirteen percent. Thus, most consumers protested against the alleged increase of sales tax from five or eight percent in the old system to thirteen percent in the new one. Moreover, the new harmonized sales tax would also be applicable to both goods and services unlike in the past when provincial sales tax would applicable to goods only. This implied that consumer goods such as foodstuff and beauty products and services such as haircuts would have an increase in prices. This would negatively affect the individual consumers because they would be forced to pay more in order to consume the affected goods and services. Thus, consumers strongly protested against the implementation of harmonized sales tax as a way of showing their discontentment and displeasure.
Moreover, the harmonized sales tax also led to an increase in the prices of homes. Residents of Ontario were required to pay more money when purchasing new homes. Although the prices of existing homes were not affected, provisions of the harmonized sales tax required that home buyers would pay an additional fee for renovations of existing as tax. Residents of Ontario were also required to pay taxes and other fees for the management of investment funds such as mutual funds and segregated funds. In response, the Ontarians claimed that this would lead to increase in investment costs, hence discourage additional investments. Consequently, the economy would be adversely affected by reduced investments. Conversely, the introduction of harmonized sales tax in British Columbia led to the exemption of taxes on public utility services such as ferry transport services, road transport services and construction of bridges and roads. This implied the people of British Columbia would obtain such services at lower costs than the Ontarians. This discrepancy in effects of the harmonized sales tax on prices of goods and services in Ontario and British Columbia also explains why there was so much more dramatic public reaction in Ontario than in British Columbia in response to the introduction of the tax system.
The political lifecycles of the Premiers of Ontario and British Columbia were also major factors that influenced the reaction of the public. The premier of Ontario Mr. Dalton McGuinty had been in active politics for less than one decade, whereas the premier of British Columbia Mr. Gordon Campell was a prominent politician who had been politically active since 1986 when he was first elected as a mayor of Vancouver. Thus, Premier Gordon Campell had more political knowledge and experience than Premier Dalton McGuinty. As a consequence, Gordon Campell was able to convince British Columbians that the harmonized sales tax would be of their benefit. On the other hand, Mr. Dalton’s stand on the new tax was viewed by the people of Ontario as a technique for seeking favor and acceptance from the people in order to win a reelection. Most people stated that Mr. Dalton McGuinty had no interest in the people but rather was interested in securing another term in the office. Thus, the Ontarians refuted his claims over the harmonized sales tax on the basis of his self-interests and political quest for being reelected as the premier. Mr. Dalton McGuinty also failed to assure the people about the ability of the harmonized sales tax to enable future improvements and quick recovery of the economy of Ontario which was already in crisis. Upon its introduction, the tax also impacted the prices of goods and services such as restaurant meals and hotel rooms for which the people of Ontario had never paid provisional sales tax until its introduction in July 2010. In addition, the main opposition party in Ontario also had great influence on how the people of Ontario would approach the issue of harmonized sales tax. The party was able to make principled and solid allegations against the government’s intention to harmonize the goods and services tax with provincial sales tax by claiming that the harmonization would result into a shift of the tax burden from businesses to individual consumers in case the new harmonized sales tax system would be implemented. This led to significant resistance in Ontario province. The opposition leaders were also able to send denouncing messages to the people and made them believe that Premier Dalton McGuinty was no longer in touch or properly acquainted with the socio-economic pressures and financial burdens that the Ontarians were facing, for instance, the rising energy prices, thus Premier Dalon would not effectively find long-lasting solutions to their social problems. The opposition leaders successfully fuelled negative perceptions, misunderstandings and emotions among the people, thus leading to massive outrage and indignation against the harmonized sales tax system. The adoption and implementation of the new system came at a time when the ruling party of Premier Dalton McGuinty was considerably weak whereas the opposition party was steadily and rapidly building. Thus, the opposition party in Ontario was able to bring out thousands of people to protest against the harmonized sales tax system. A survey poll by the CCH Canadian Limied in late 2010 indicated that the support of government of Premier Dalton McGuinty by the people had dropped considerably while the opposition party was gaining widespread popularity in the province. Conversely, the main political party in British Columbia, the New Democrats lacked the ability to oppose harmonized sales tax when it was proposed by the government in July 2009. This is because the New Democrats party had strong political ties with the federal government which have been advocating for the adoption and implementation of harmonized sales tax in all provinces in Canada. Thus, the opposition party in British Columbia had little capability and unstable grounds for opposing, hence leading to reduced opposition by the public.
Last but not least, the political suppression in Ontario is also one of the major factors that contributed to dramatic reactions by the public in Ontario when the harmonized sales tax was introduced. Most people in Ontario do not practice populist politics. Populist politics refers to a situation in which people can freely express their viewpoints and voices against unfavorable policies of the government through public protests. Thus, the people of Ontario decided to hold protests against the government’s move to combine the goods and service tax with provincial sales tax as a way of showing their dissatisfaction and to bring back social democracy to Ontario.
In my opinion, the tremendous, negative reaction of the public to harmonized sales tax in Ontario indicates that the perception of people in relation to harmonized sales tax has not changed. In addition, a poll survey conducted by Ipsos Reid in 2010 also revealed that seventy percent of Ontario residents opposed the move by the government to harmonize the goods and services tax and provincial sales tax. Although many research studies were conducted to establish the benefits that were likely to be obtained by provinces or countries that adopt the new tax system, none of these studies provided a comprehensive explanation of such benefits. Therefore, there were no convincing and credible reasons that explained why the provincial sales tax and the goods and services tax should have been harmonized or combined. It would also be recommended that governments conduct adequate research studies to determine the possible public reactions to implementation of harmonized sales tax before combining the goods and services tax with provincial sales tax in order to prevent unexpected dramatic reactions.