It’s ironic but the firestorms in Ontario and British Columbia over pending harmonization of federal and provincial sales taxes mirror in some ways what’s going on with the NB Power sale. In both cases, the primary benefit appears to go to industry with the cost shouldered by consumers.

A harmonized sales tax (HST) generally offers significant benefits to business at the expense of consumers but it has also proven to be good for the economy. The parallel with NB Power is that the primary beneficiary of its sale to Hydro Quebec would be NB Power’s industrial customers. Residential and commercial customers would benefit from a rate-freeze but not a rate-cut.

In the Atlantic Provinces, business investment rose following the introduction of the HST in 1997. “There was something like an 11% increase,” says Michael Smart, a University of Toronto economics professor who has released numerous research papers on the influence of the HST. Could a similar result come from the sale of NB Power?

Ontario Premier Dalton McGuinty promises similar results when Ontario introduces the new tax. He cites studies that claim Ontario will see as much as $47 billion in new investment during the next decade, thanks to the HST.
Nova Scotia, New Brunswick and Newfoundland have already implemented the HST. Quebec has a hybrid version of the HST where the province collects the two taxes and then remits to the federal government at the end of each year.

Alberta has no need for an HST because it charges no provincial sales tax on goods (although GST is applied to most purchases). Other provinces are undecided. Manitoba is mulling the idea of shifting to HST, but will watch Ontario and B.C. before deciding. Prince Edward Island is not interested.

Saskatchewan was the first Canadian province to implement the HST under Conservative Premier Grant Devine in 1991. The tax proved so unpopular, it fueled the defeat of Devine’s party later that year by the New Democratic Party, which subsequently reversed the HST decision and returned to taxes split between the province and the federal government. It’s predicted that if Ontario and BC adopt the HST, Manitoba and ironically, Saskatchewan will soon follow.

I spent a few days in British Columbia this week. The HST is a hot issue in that province. Economists from across the country say the Harmonized Sales Tax is the single most important step British Columbia can take to boost its economy. British Columbia restaurateurs and others in the province are crying foul but the economists say harmonizing the GST and PST will save employers $2 billion that can be used to lower prices, increase investment and create jobs. The economists may be right but a lot of people aren’t buying it.

Complicit in the harmonization debate is the Harper government which will introduce legislation to make it happen. There was pressure on Michael Ignatieff to oppose the legislation. To oppose the HST was considered good politics but bad economic policy. This week Ignatieff announced that he and his caucus would support the government in its HST legislation. In my opinion, they did the right thing and should be congratulated for taking the high ground, even though it will be painful for many of them.

Premier Dalton McGuinty points to other countries, including Australia, New Zealand and Great Britain that have moved successfully to value-added, harmonized-tax systems despite public opposition. Indeed, some 143 countries around the world have implemented similar tax regimes. The pain will be short-term, says McGuinty, a prediction supported by the 1997 experience in the Atlantic Provinces.

The HST is not an issue in the Maritime today and there is nobody claiming we have to go backwards on the issue, although people might like it to be lower. Adopting the HST saved New Brunswick 43 per cent of its annual tax administration costs, or more than $5 million.

HST proponents believe that businesses, paying less tax into a streamlined collection system are spurred to trim the price of goods and services. A recent study by the TD Bank suggests that in the first year, businesses in BC and Ontario will pass on more than 80 per cent of the savings to consumers and projects a net increase in prices of only 0.7%.

There is a sidebar to this discussion. The Harper government reduced the federal portion of the HST by 2% a couple of years ago, helping to balloon the federal deficit. Who feels that cut today? New Brunswick should consider adding those two points to the provincial portion of the HST to help offset its deficit. With the extra money and reasonable growth, combined with the sale of NB Power, New Brunswick could balance its books in the next few years and perhaps run a surplus in the following years.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com