Liberals admit HST will cost families up to $480 a year

HST rebate cheques are being mailed out this week, but Ontarians may want to bank some of the money as the new tax will eventually cost households up to $480 a year.

In fact, 51 per cent of Ontario families will pay more in taxes by 2012, according to the Liberal government’s own study on the impact of the business-friendly 13 per cent harmonized sales tax. The tax takes effect July 1.

Speaking to an Ottawa radio station, Premier Dalton McGuinty emphasized that the transition payments of up to $1,000 per household should offset higher levies on gasoline, electricity, and other goods and services.

“We’ve worked really, really hard to minimize the impact of the HST,” McGuinty told CFRA Radio.

“That’s money we’re passing directly to our families through the federal government to help them cope with the HST,” he added, referring to the three installment cheques totalling up to $1,000 being sent out starting Thursday.

Prime Minister Stephen Harper’s Conservative government gave McGuinty’s Liberals $4.3 billion as an incentive to blend the 8 per cent provincial sales tax with the 5 per cent federal GST, hiking tax rates on about one in six services and products.

That money will in turn be distributed to Ontario families with household incomes of less than $160,000 in the form of what Progressive Conservative Leader Tim Hudak derided as “bribe cheques.”

Single Ontarians earning $80,000 or less will receive $300. Three payments – in the form of government cheques or direct deposits into taxpayers’ bank accounts – will come this month, in December, and next June.

But any taxpayer jubilation over the rebates may be tempered by a sobering new 38-page report released Tuesday by the provincial finance ministry, entitled Ontario’s Tax Plan for Jobs and Growth.

Officials found by the third year the HST is in place – 2012 – families with a household income greater than $60,000 will pay more in taxes even though income-tax rates were trimmed as of last Jan. 1.

Revenue Minister John Wilkinson argued the tax system will be “more progressive” because lower-income Ontarians will pay less.

“The people with the most will pay more as a percentage than the people with the least,” Wilkinson said in an interview.

For example, by 2012, a family with a combined annual income of between $20,000 and $30,000 will save $235 a year. Overall, 49 per cent of families will be ahead after the tax is in place and 51 per cent will pay more.

Once the $60,000 income threshold is breached, however, the tax burden escalates steeply:

• Between $60,000 and $70,000, it’s a $45 hit for the 7 per cent of Ontario households in this bracket.
• Between $70,000 and $80,000, it’s $95, affecting 6 per cent of households.
• Between $80,000 and $90,000, it’s $135, also affecting 6 per cent of families.
• Between $90,000 and $100,000, it’s $195, affecting 5 per cent of households.
• Between $100,000 and $125,000, it’s $240, affecting 10 per cent of households.
• Between $125,000 and $150,000, it’s $295, affecting 7 per cent of households.
• Between $150,000 and $300,000, the highest bracket for which figures are available, it’s $480, which affects 10 per cent of earners.

While the government claimed its assumptions are “very conservative,” its calculations are based on businesses passing along to consumers 90 per cent of all savings realized through the streamlined tax by 2012.

(In comparison, the TD Bank, which has refused to say what, if any, service fees it would be cutting as a result of the new measure, estimates 95 per cent of savings would flow through to Ontarians by the third year of the HST.)

NDP Leader Andrea Horwath said the report was “ludicrous.”

“No one believes that businesses will pass on their savings to consumers. If the government’s own business—the LCBO—isn’t going to pass on the savings, why should those in the private sector?” said Horwath.

That’s a reference to revelations in the Star last month that the province’s Liquor Control Board of Ontario quietly increased its mark-up by 7.5 per cent in order to claw back any revenue shortfall from the HST.

“The shifting of taxes off the corporate sector onto the backs of individuals and families is the wrong thing to do,” she said.

Hudak, meanwhile, dismissed the HST as “a greedy tax grab.”

While both he and Horwath rail against it, neither has pledged to repeal it if they become premier after the October 2011 election.