Dr. David Robinson [email protected] is an economist at Laurentian University in Sudbury, Canada. His column was originally published in July issue of Northern Ontario Business. Established in 1980, Northern Ontario Business provides Canadians and international investors with relevant, current and insightful editorial content and business news information about Ontario’s vibrant and resource-rich North.
I genuinely like politicians. The ones I know are all smart people with good people skills. Some of them even buy me lunch.
It bothers me when a politician I like pushes a policy that I know is dumb. I absolutely cringe when the provincial conservative leader Tim Hudak and provincial NDP leader Andrea Horwath talk about the Harmonized Sales Tax (HST).
As an economist, I know that the HST is a good idea. The Provincial Sales Tax (PST) is out of date, costly to operate, badly designed and it penalizes jobs in Ontario. The PST has all the virtues of a car engine with a ruptured head-gasket, a broken valve and cracked exhaust manifold. It might still run, but it is noisy, stinky and inefficient.
Let me be clear about this: the vast majority of economists support combining the federal and provincial sales taxes. We are so sure that a bunch of Canada’s most respected economists produced an open letter saying they “strongly support implementation of the HST,” because “it will promote investment, jobs, and higher wages.” One leading tax analyst showed harmonization in B.C. will create 113,000 new jobs by the end of the decade; Ontario is three times as big and has relatively more manufacturing.
How can reorganizing sales taxes make such a difference? The provincial sales tax falls on inputs for businesses as well as sales to consumers. The result is that for some products, consumers are paying the Provincial Sales Tax twice. They pay the markup at the till, and they pay the hidden PST on the machinery that the businesses use.
If you buy an iPod shipped in from Asia, you don’t pay this extra tax. No machines were used to produce the iPod in Ontario. Your government only double-taxes jobs in Ontario! Andrea Horwath and Tim Hudak want to keep promoting offshore production!
Their confusion will hurt Northern Ontario. The total value of mining supply and service sector output is $5.6 billion. There are 500 companies employing 23,000 people in Northern Ontario. The HST makes them more competitive. The PST hurts small businesses even more than big ones because they are even more intensive users of machinery and equipment in production than the large businesses.
Nova Scotia, New Brunswick, and Newfoundland and Labrador and Quebec have already seen the light.
So why don’t Tim and Andrea want to fix the Ontario’s lunatic PST? Are they ignorant of the way taxes work? Are they are lying to get votes? It is hard to tell. We can be 100 per cent sure that if either of them forms the government, they won’t go back to the PST.
When the NDP fights the HST, they tell themselves they are defending the poor. They are wrong. Canada’s best leftish think tank is the Centre for Policy Alternatives. It found that the HST reforms will slightly increase the income for the poor. It will certainly improve their job prospects.
The part of the NDP message that people will remember is that paying taxes is bad. In her rush to say something that is popular, Horwath is reinforcing the anti-government, anti-tax rhetoric of the Conservatives. She might as well join the Republicans.
What makes the NDP position even more pathetic is their harping on how the HST will increase fuel costs. The one absolutely good tax if you are an environmentalist is a tax on hydrocarbon fuels. The vast majority of economists support heavier carbon taxes to fight global warming. Here again both Hudak and Horwath are promoting bad policies.
What makes Hudak’s position pathetic is that the HST is good for small business. Tim likes small business, doesn’t he?
What a strange situation. We have leaders on the left and the right promoting the same policies. Both of them are ignoring the advice of professional economists. Neither of them seems to have a clue about how the tax system works. Both of them are undermining Northern Ontario’s future for a very few votes in the short run. This is reactionary populism at its worst.
I said at the beginning that I like politicians. I would like this pair a lot better if they would get a bit of professional advice.
David Robinson is an economist with the Institute for Northern Ontario Research and Development at Laurentian University.