You won’t see Canadian manufacturers signing any HST petitions. Neither will you spot any exporters at a Bill Vander Zalm rally.
While the former British Columbia premier tries to derail the implementation of the harmonized sales tax in that province, Canadian businesses, particularly those beleaguered by the high dollar and economic woes, bear a collective smile. Mostly.
“It is going to relieve companies of a lot of costs and simply make it much more attractive to make the investments that create the jobs,” said Jayson Myers, president of Canadian Manufacturers and Exporters.
When the HST takes effect on July 1 in Ontario and British Columbia, it will merge the federal GST with the provincial sales taxes, and do away with what is considered by economists to be an antiquated type of taxation.
According to analysts, the HST is modern and efficient as a valueadded tax, which is levied only on the value of a good or service added at each stage of production.
If the harmonized tax is a Prius, the PST is a rusted Pinto on blocks in a shed. The problem with the PST is that it applies to business inputs — or the costs of production — at each step in the production process, thinning the coffers of those enterprises with many incremental production steps, such as manufacturers.
“Sectors that have multiple production chains, they use a lot of inputs. [For them], the sales tax currently gets multiplied and compounded as you move through the production stages,” said Niels Veldhuis, senior economist at the Fraser Institute.
“We know that if we tax production, we change people’s incentives to work hard, save, invest or take an entrepreneurial risk. It really does lead to lower rates of economic growth,” he said.
In addition, because that brand of tax is employed in few jurisdictions in the world, the PST puts Canadian exporters at a fundamental disadvantage, imposing on them additional costs from which their international competitors are spared.
“For the forest industry, because much of what we produce we sell outside of British Columbia, mainly the United States, Japan, China and the rest of Canada, we can’t charge the PST on our sales,” said Rick Jeffery, president of the Coast Forest Products Association.
“So we end up paying PST, but we have no way of recouping it.”
Mr. Jeffery calls the upcoming tax change a “lifeline” for the province’s forest products sector, which has been hammered by the meltdown of the U.S. housing market and the rise of the loonie.
Implementation of the HST will save the province’s industry about $140-million in taxes annually. “That will put that money available to us to invest in innovation and productivity,” he said.
Once market conditions improve, the sector will be able to capitalize on savings resulting from the abolition of a “job-killing tax,” Mr. Jeffery said. “And if we can capitalize on them that means we can put more people back to work.”
The HST also goes a long way towards improving the prospects of Ontario’s manufacturers, an industry that has been up against enormous adversity over the past few years.
According to the Conference Board of Canada, manufacturing production in Ontario, led by the shrinking of the auto sector, dropped 22% in 2008-09.