Ontario Justifies HST

The votes are in. Ontario's Liberal government passed legislation to create a single 13 per cent Harmonized Sales Tax (HST) beginning July 1, 2010. The final vote came after weeks of staunch opposition in the Ontario legislature. However, as NDP leader Andrea Horwath stated, the Liberal majority was able to "ram through the HST bill…with little debate as possible."
 

The Liberals are enthusiastic about the HST. In a province still reeling from massive unemployment due to the current recession, the government estimates that the new tax will help create 600,000 new jobs over the next decade. Blending the PST and the GST will lower costs for businesses. This, in turn, will allow businesses to lower prices for consumers and hire more staff.
 

The opposition parties are adamant that the public, if asked, would strongly oppose the new HST and, thus, the Liberals did not take the tax issue to the polls. The opposition feels that the tax bill was railroaded as a way to increase tax revenues for the province. While many businesses will, indeed, benefit from the new tax, consumers will ultimately pay more from their pockets. Current PST exempt items including gasoline, home heating fuel, and cable TV will now be taxed under the new HST.
 

The new tax legislation is not without compensation. January 1, 2010 will see the implementation of tax cuts to both corporate and income taxes. Furthermore, some families will be entitled to a one-time rebate of up to $1,000 to offset the tax impact.
 

Ontario is not the only province to implement the HST. New Brunswick, Quebec, Nova Scotia, Newfoundland and Labrador have already done so. British Columbia has passed legislation to implement the HST next year as well.

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Federal Government: $20 Million to Develop Eastern Ontario

The Canadian government's Economic Action Plan was designed and legislated earlier this year to provide economic stimulus and fiscal assistance to segments of the country in need as a result of the recent global recession. One such area that has received special government attention is the rural region of eastern Ontario.

Over the next two years, $20 million of stimulus funds will be provided by the Federal government for the Eastern Ontario Development Program (EODP). EODP will be administered by a new government agency, the Southern Ontario Development Agency, currently being established. EODP is designed to contribute to the successful development of business and job opportunities by supporting community-based initiatives in rural communities. These funded opportunities will hopefully attract and retain youth in the communities, support skills development, make capital available to new and existing businesses, and support technological enhancements in these communities located far from the major urban centres of the province.

The rural area of Eastern Ontario extends east from Durham Region and Algonquin Park and is bounded by the border of Quebec. Not included in this program are the cities of Kingston and Ottawa.

In order to make these funds available to a broad range of residents, EODP eligibility is open to non-profit organizations (including municipalities), Aboriginal organizations, community development associations and organizations, local entrepreneurs, and small to medium sized businesses within the administered region.

Organizations requiring detailed information on eligibility and applications should contact a local Industry Canada officer. Officer information can be obtained from the Industry Canada web site. 

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100 Million Dollar Development Program For Southern Ontario

Prime Minister Stephen Harper's Economic Action Plan, officially released in January of this year, is the result of consultations and discussions with interest groups, business leaders, provincial and municipal governments and the Canadian public. The global recession has affected each province differently and, similarly, different communities have specific needs. As a result of the specific economic challenges faced by communities and businesses in Southern Ontario, a new federal agency was created to address those issues.


On August 13, Mr. Harper launched the new Federal Economic Development Agency for Southern Ontario (FedDev Ontario). As economic recovery begins in Canada and in nations around the world, FedDev Ontario will help workers, businesses and communities in Southern Ontario take advantage of various economic opportunities.

The new agency will use several new or existing programs to expedite the flow of funds to Southern Ontario. For example, $100 million will be available via the Southern Ontario Development Program to promote economic development and job creation. An additional $350 million from the Community Adjustment Fund (CAF) will provide short term economic stimulus to communities affected directly by the recession. The CAF will also provide $30 million to the Community Future Development Corporation which provides important services to businesses and entrepreneurs in Southern Ontario. The Business Development Bank of Canada will invest $50 million in Southern Ontario. And, finally, more than $67 million in grants will be available from the National Research Council (NRC) for technical innovation leading to wealth creation. And, the Industrial Research Assistance Program of the NRC will receive an additional $27.5 million to foster innovation among small and medium-sized businesses in Southern Ontario.

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Harmony in Ontario Tax System?

The HST – Harmonized Sales Tax – will become a way of life in Ontario. The new 13 percent tax, slated to begin July 2010, will harmonize the federal and provincial sales taxes. Provincial legislators claim that the HST is good for the province. It will ultimately save businesses money and these savings can be passed on to the consumer. Not everyone, though, is as optimistic as the province's leaders.

Some analysts and tax specialists predict that the HST will create an underground economy. It will negatively affect many small and medium-sized firms that provide services and were previously exempt from the provincial sales tax. This will force these businesses offshore or to other provincial jurisdictions that don't charge PST on services. Ontario will lose the competitive advantage that it had.

Not all analysts agree with this doomsday outlook, though. Citing the Atlantic Provinces that harmonized their sales taxes in 1997, no great revolution took place. There was no tremendous increase in business outsourcing their work, nor did businesses leave home to seek better tax systems across the nation.

Ontario legislators predict that, due to the HST, companies will save $500-million in tax compliance. The new tax will also improve cost efficiencies in government. The province does acknowledge that business will have to change their accounting and point-of-sale systems to accommodate the new tax. However, the province has set up a one-time $400-million fund that will provide tax credits to small businesses to offset the costs of these changes.

One final skeptical note that opponents point out. Previously, companies were compensated for collecting retail sales taxes. Under the new HST, businesses will provide the collection services for the province free of charge.

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Canada More Confident About Hiring as Ontario Catches Up

According to the Bank of Canada’s Business Outlook report, Ontario businesses are not as optimistic regarding hiring as companies in other Canadian provinces.

The Bank of Canada released this and another report on July 13 2009. Both are bullish about the Canadian economy yet bearish on Ontario’s payroll statistics. The central bank said "On balance, firms expect to increase the level of employment over the next 12 months… Hiring intentions have improved in all sectors but continue to be relatively weak in some regions, notably, in Ontario."

Out of 100 companies interviewed between May and June of 2009, only 39% expected to increase payrolls during the next year and 17% expected declines. The last report in April said that 25% were optimistic and 26% were expecting payroll cuts.

The central bank did not explain why Ontario was not as confident regarding hiring. Michael Gregory of BMO Capital Markets, a private-sector economist, pointed to the manufacturing sector saying that the survey was conducted during the shutdown of Chrysler LLC's business operations and prior to the emergence of the new General Motors Company.

Meanwhile, the Conference Board of Canada issued its own report forecasting moderate growth for the Canadian economy which would cause the GDP to diminish by 1.9% in 2009 yet is expected to bounce back in 2010 by 2.7%.

Despite these hiring trends, 61% of Canadian businesses are more positive about future sales despite the credit crisis. Only 33% of respondents suggested that credit conditions have tightened within the last few months.


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