Minister of Revenue John Wilkinson speaks to local chamber about need for HST

Revenue Minister John Wilkinson is convinced that while the Har­monized Sales Tax (HST) may not be popular, it is what Ontario needs to get its economy back on track.

“We have great public services in our province,” he said. “We have great hospitals, great schools, great universities and colleges, roads and bridges and police officers … all those things that are provided. We can’t afford that if we have high unemployment.”

Wilkinson, the minister chosen by Premier Dalton McGuinty to convince Ontarians the tax is necessary, added, “The problem we have right now is that we have high unemployment. Unemployment has doubled in the western world in 18 months and we have to turn that around. If we don’t turn that around we have less people putting in and more people drawing.”

Wilkinson added, “We can’t provide the public services we have if we don’t get people back to work. We can’t have 10% unemployment and the services that people count on.”

Wilkinson, also the MPP for Perth-Wellington, made a presentation on his home turf to the Minto Chamber of Commerce on Oct. 8.

Glen Hall, president of the Minto Chamber of Commerce, said a number of business operators from out of town were in attendance at the meeting. The Minto Chamber itself represents 130 local businesses.

Hall said a recent update to the Minto Chamber of Com­merce website includes additional links, such as more information on the HST and links to other groups such as the On­tario Ministry of Reve­nue and the Ontario Chamber of Com­merce, which also has information on the HST.

Minto Mayor David Ander­son said the HST “is something that’s going to affect us all.” He has been to a few workshops on the HST already.

“I have an idea what is happening and I’ve been in contact with John (Wilkinson) quite a lot,” Anderson said.

Hall read a statement from the book Good to Great by Jim Collins, noting that many business owners have already read it.

“Basically one of the biggest tips is – to confront the brutal facts,” Hall said. He then moved into Wil­kinson’s discussion and said the tax system has not been brought up to date since 1961.

“Things like that have not changed, but businesses certainly have changed since 1961. John will hopefully be able to clear some of that up for us on exactly what is coming, so we can prepare for it.”

The night also included a talked by David Richenback, a chartered accountant from Har­riston, who offered tips for busi­ness people to prepare for the changes ahead.

Hall said the Ontario Cham­ber has done considerable lobbying to get a one-tax system to strengthen business.

He quoted Ontario Cham­ber of Commerce president Len Crispino, who said, “The tax rate on business investment in Ontario has put us at a disadvantage next to our peer jurisdictions in the U.S.A. and Canada. And it must urgently be addressed if we are expected to be a magnet for investment and innovation in this province. We must moved ahead with tax reform, most importantly sales tax harmonization.”

Said Hall, “What we’re looking for is an answer to all the questions.”

Wilkinson, who was a certified financial planner for 20 years, said the HST is the largest tax reform in the province in over 40 years.

“It is not a small task and it is not a simple task. It’s actually complex and it’s going to take some time for all of us to learn about the new system. It’s important to understand why we are doing it, because we are all in business … and I used to be … and I look forward to be going back to that.”

He explained that like business people, the Ontario government does not control the rate of exchange between the Canadian and the U.S. dollar.

As well, the Ontario government does not control the price of oil, nor does it control how fast or how strong the American economy comes out of the recession.

He asked, “Do you think after this recession gets over – all recessions end eventually -do you think the economy is going to be the same as it was before, or do you think it’s going to be different? Most people are telling me it’s going to be different.”

He said, “The wisdom of people out there, particularly the business community, they see some fundamental changes ahead.

But, it is the government in charge of taxation, he said.

He questioned if it is better to have all the eggs in the American basket – or trade more with the rest of the world.

“People tell me the smartest thing is to try to trade more. Ontario is the only place in the world where we export 80% of what we make. And we are still a jurisdiction that taxes businesses for the things that they buy to make stuff to export to the world. When we do that, we generate jobs.”

Wilkinson explained, “Every­thing we sell around the world has layers of tax. It’s called the PST … because we charge that every time something changes hands,  with no credit for that tax that’s already been paid. Everybody in business knows the difference between the GST and PST is quite simple.

“In the GST, you charge it to your customer, you send it off to Jim Flaherty, minus what you’ve paid. You get an input tax credit for what you’ve paid. The tax that’s being charged is only on the value that you’ve added.”

He said that is the system used by 130 countries around the world.

“And that’s exactly how we tax things in Canada, except we have provinces which are running around with different different systems, duplicate systems.”

He said, “In business, we charge the PST to our customer, but we don’t get a credit back for the PST we’ve paid. So the price we charge our customer has to include the PST that we have paid.

That’s why the PST is a hidden tax … because the consumer thinks they are paying 8%, but the reality is that every time that good or service has changed hands, it has been taxed over, and over, and over again.”

He stressed it is not on the value that has been added, but on the price.

“In some businesses, there are credits. However in most of the economy we have that tax. In this country we have one value added tax – the GST.

But, he said, several prov­inces such as British Columbia, Ontario, Manitoba, Saskat­chew­an and Prince Edward Island have duplicate systems.

“I think people would agree that one tax, at one rate, on one common set of goods and services, with one set of rules, one set of paperwork, and one set of civil servants, costs less money to administer than having two taxes at two different rates with two sets of rules and regulations.”

Wilkinson said, “Most coun­tries in the world have modernized their tax systems. The one we have today was created in 1961. I was two years old in 1961. I could barely say PST let alone spell it … and we haven’t changed, but the world has.”

Wilkinson said it was the business community that wanted the change.

“That’s why the business community in this province for 20 years, and particularly for the last 10 years has been saying to government that the single most important you could do is to go to one tax.

He said that recently, the Canadian Chamber of Com­merce passed a resolution calling on  all governments in Canada to go to one tax.

Wilkinson said compelling argument for that is that the largest trading block in the world is the European Union.

“That’s a place we should do more work with. As a matter of fact, the federal government has entered into free trade agreements with the European Union. If we were successful, that would make Canada a place where we would have free trade with the EU, and free trade with North America.”

He said, “That would give us quite a competitive advantage. But you can’t be a member of the EU unless you have just one national value added sales tax. “You’re not allowed to have municipal sales tax like in the U.S., or provincial or state taxes. Now, if if you have one tax and give businesses back those input tax credits they don’t get today … You have to broaden the base to make that happen.

He said that “under the tax reform, businesses will receive $4.5-million more every year in input tax credits than they do today. Because all the PST the business has paid comes back to you, because there won’t be a PST. It will be the GST rules. There would be one tax return, which would be sent to the federal government.

He added, “But you get the advantage of receiving back all of the HST that you pay. If we do this, the advantage that we have is that it allows us to do the other part of the equation.

He said the HST is only one half of the tax reform. The other half is income tax reform, which is income tax cuts – for people, for small business, and for corporations.

He said the small business tax will drop from 5.5% to 4.5% next July.

As well, plans are to eliminate the small business surtax as well.

“We’ll be the only province in this country to have done that.”

Wilkinson said corporate tax rates are 14%, which will drop to 12%, and by 2013 down to 10%. He said the impact to such companies TG Minto include when they want to grow, one of the questions they ask is how much they have to set aside for tax.

“In Ontario today, that is 33%; when we do our tax reform that is dropping down to 16%,” he said. “That is less than half of what is being charged in the states where we are competing for jobs – Ohio, Pennsylvania, New York, and Michigan.”

Wilkinson said “Their taxes will be twice ours when it comes to new business investment … and what we need right now is new business investment. For people, we’re doing a number of things, such as cutting personal income taxes. We’re dropping the rate on the first tax bracket, so it affects the most number of people – 93% of Ontarians will receive a tax cut.

He added, “We’re permanently dropping the income tax rate the first $37,000 worth of income.”

That rate, he said, will be the lowest for any province in Canada.

“For people of low income, they receive the GST rebate which is $240. That is the maximum. For a child, that amount is $140. We’re going to make it an additional $260 for every adult and child in the family. As well, property tax credits are being increased, and we’re doubling it for seniors.

Wilkinson admitted there are difficulties in persuading people the HST will have benefits.

“The problem is, if we put on the HST, there is going to be a sticker shock. For one, it will take a while for the tax cuts to work through the system – but they will”.

He said plans are underway to help people in the first year of transition.

“For single people earning less than $80,000, there will be $300 in transition funds divided in three cheques.”

He said couples earning less than $100,000 would get $1,000. He compared that $1,000 as the equivalent of the 8% tax on $12,000 of purchases.

“It is to get the system out of the 20th century and drag it in the 21st century where we are competing today for jobs.”

 

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