HST Without Harmonization

A recent letter from economists nicely summarized the two main theoretical arguments in favour of the HST: “Businesses, large and small, will face lower administrative costs from complying with one sales tax system instead of two. Lower business costs, especially on capital equipment, will encourage investment and economic activity.”

Both arguments make sense in a stylized model of replacing retail sales taxes with a value-added tax on the GST base. But as I have noted before, the provincial portion of Ontario’s HST exempts some products that are subject to GST and applies to other products that are GST-exempt.

Not surprisingly, the BC government is also “rebating” the provincial portion of its HST on certain items. Indeed, yesterday’s Globe and Mail contained an interesting catalogue of the differences between the HSTs in Ontario and BC. So, businesses are still complying with as many sales-tax systems as before: the federal GST, the provincial portion of Ontario’s HST, and the provincial portion of BC’s HST.

The second pro-HST argument overlooks the exemptions for capital equipment in the former provincial sales taxes. Businesses were already benefiting from sales-tax breaks on major investments.

I made that point repeatedly on this blog and about a year ago in The Globe and Mail. My colleague Kim Pollock did so more recently with specific reference to BC’s forest industry.

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