HST in British Columbia and Ontario gets support from top Canadian economists

The Canadian Press ~ The News
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TORONTO - Some of Canada's top economists are encouraging people in British Columbia and Ontario to support the harmonized sales tax, which takes effect in both provinces July 1.

The Canadian Press has obtained a copy of an open letter signed by some of the country's best known private and public sector economists, saying they "strongly support implementation of the HST," because "it will promote investment, jobs, and higher wages."

The letter, dated June 15, was signed by former Bank of Canada governor David Dodge, Don Drummond, Economics Advisor, TD Bank Financial Group, Warren Jestin, Chief Economist, Scotiabank, and Sherry Cooper, Chief Economist, BMO Capital Markets, among others.

It said the HST will make the provinces more competitive by eliminating the retail sales tax currently hidden in the costs of goods purchased by businesses.

"This (retail sales) tax becomes embedded in the cost of goods at each stage of the production, distribution and retail processes," write the economists.

"The result is a compounding of the tax that is ultimately paid by consumers through higher prices."

The new single sales tax, which combines the provincial retail sales tax with the GST, will be 12 per cent in British Columbia and 13 per cent in Ontario.

The economists support the view of both provinces - and the federal government that convinced them to switch to a single sales tax - that consumers will benefit in the end because businesses will pass along their savings in the form of lower prices.

"Lower business costs, especially on capital equipment, will encourage investment and economic activity," they write.

"Lower business costs will ultimately allow price reductions on many consumer purchases, including big ticket items, such as automobiles and computers."

Erin Weir, an economist with the United Steelworkers of America, questioned the logic of making consumers pay more for some goods and services - including home heating and gasoline previously exempt from provincial sales tax - to lower costs for businesses.

"The real debate is about using public money, whether taken from consumers (with) the HST or from general revenues (with) corporate tax cuts, to support business," said Weir.

"We should ask whether across-the-board tax breaks on business inputs and profits are the best way to promote investment and employment."

Academics also signed the open letter supporting the HST, including Werner Antweiler of the Sauder School of Business at the University of British Columbia, Victoria Barham, Chair of the Department of Economics, University of Ottawa, John Chant, Department of Economics, Simon Fraser University and Roger Martin, Dean, Rotman School of Management at the University of Toronto.

The British Columbia government is facing huge public unrest over the looming HST, with a key cabinet minister resigning last Friday after hundreds of thousands of voters signed a petition to repeal the HST legislation.

By contrast, public outcry in Ontario over the HST has been muted, with very few protests other than angry calls to radio call-in shows, despite the best efforts of the Opposition to call it a "greedy tax grab."

Organizations: Canadian Press, Bank of Canada, TD Bank Financial Group Scotiabank Capital Markets Department of Economics United Steelworkers of America Sauder School of Business University of British Columbia University of Ottawa Simon Fraser University Rotman School of Management University of Toronto

Geographic location: British Columbia, Ontario, TORONTO Canada

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