Front page story that never was
Some egregious errors just have to be called out and corrected. One of those is the front page story (or non-story) in the Mississauga News August 24 edition. In an all-caps headline over a stern picture of Mayor Bonnie Crombie, it shouts out “Crombie Blasts Province.”
- The picture used on the front page of the Mississauga News is not from an announcement. It is an old file photo (and not labelled as such) from Mayor Crombie’s 2014 election, certainly not from any 2017 event at which she took issue with another level of government policy;
- Did the Mayor ‘blast’ the Province while on vacation in Europe, which is where she was when she found out about the headline? Mayor Crombie did not convene a news media event to make such a statement;
So what is the kerfuffle about?
At the early August meeting of the Association of Municipalities of Ontario (AMO) in Ottawa, AMO released a statement urging that one percentage point be added to the Ontario provincial sales tax, with the proceeds of that sales tax going to fund municipal infrastructure costs. Many mayors, including Bonnie, were asked to echo the need for municipal infrastructure funding to be more broadly-based than an exclusive reliance on property taxes; development charges; and user fees. These are all the revenue sources that cities have.
The ‘ask’ is an appropriate option to municipal infrastructure needs, and ought to give rise to an informed discussion. The manner in which AMO asked it to be implemented is not. It would, if implemented as asked by AMO, create one tax regime in Ontario that is different from every other province. If you are a national retailer (and most of them are headquartered in Ontario), you would rightly point out that your ability to do Canada-wide pricing would be gone, and it would make Canadian operations and marketing much more difficult, and more expensive.
U.S. states and European countries do levy sales taxes whose proceeds build roads, improve water and other municipal and regional facilities. Cities are indisputably the wealth creation engines of the 21st century, and funding them should not be intermittent, or one-off initiatives. Ontario has a number of programs to fund rural municipal infrastructure. The Ontario gas tax rebate helps urban areas afford to replace buses, and underwrite transit services.
How to use the sales tax to fund infrastructure
Prices fluctuate. Products and services go on sale. Some things go up, some things come down. Would one percentage point make much of a difference?
It would if it were in your face for each and every transaction.
It wouldn’t if Canada treated sales tax like most other jurisdictions, as part of the price of the good or service. If something is quoted as 50 Euros, that price includes all applicable taxes. If something is quoted as 50 Canadian dollars, that price attracts an added $2.50 in federal Goods and Services tax, and another $4.00 in Ontario Harmonized Sales Tax, for a total of $56.50. That’s the problem.
Retailers love the status quo, though they really shouldn’t. The status-quo makes the base price seem low. And vendors advertise the price of the product as the base price, not the price that is all-taxes-in that the purchaser really has to pay. When the federal government moved to replace the old manufacturer’s sales tax with the superior, and more broadly-based Goods and Services tax in the 1990s, a few retailers tried including the new tax in the price of the products they sold (as the old manufacturer’s sales tax was). It didn’t work. Their competition just advertised a lower base price, and that’s what consumers chased. To do the forward-looking thing, it has to be a universal and level playing field.
The western provinces, who are the only ones in Canada without a Harmonized Sales Tax, are now at a crossroads. It is easy to crow about a balanced budget when agricultural products, minerals, forest products and fossil fuel energy products are selling at high prices, as they were until a few years ago. With petroleum looking like it will stay in the $50 US per barrel range for an extended time, and slow global growth dampening other commodities’ prices, building a provincial economy on invisible (to the consumer and voter) royalty streams doesn’t seem like a good long-term bet.
A new tax-included pricing regime, which is what AMO should be requesting, needs to be Canada-wide in scope. Perhaps now is the time that the western provinces need to listen to their own provincial think tanks and policy advisors who have been advising them to convert their provincial sales taxes to the harmonized model for years. In Alberta’s case, this means implementing a provincial sales tax. In the course of making this conversion, the feds, in this scenario, would need to restore one percentage point of the GST, removed during the previous decade, raising it to six percent, and dedicate that one percentage point to the municipality in which it is collected. This is how to do what AMO, and its counterparts in other Canadian provinces, are asking. And it is a good, sustainable option which might also be good public policy.
What would the invoice look like?
Here is how the status-quo compares with tax-included pricing, and with the regime AMO should be asking for. Allowing for the normal fluctuations in pricing at the discretion of the retailer, let’s look at equal invoices side-by-side.