Tuesday, April 6, 2010

A Harbinger of Tax Increases to Come?

It was interesting to see the new NDP government in Nova Scotia raise their HST level by 2 percentage points from 13% to 15% in today's budget despite their campaign promises of no tax increases. I firmly believe that this tax increase is a harbinger of tax increases on goods and services to come in all provinces right across Canada.

With the huge deficits that provincial governments are running in both last and this fiscal year's budgets, my suspicion is that other provinces will soon join Nova Scotia and Quebec in raising their sales taxes. In the case of Quebec, their blended sales tax is rising by 1 percentage point to an effective rate of 13.92% on January 1, 2011. For the time being, since HST is just being introduced in both Ontario and British Columbia on July 1, 2010, their residents are unlikely to face increases in HST until the next budget cycle since politicians in both provinces are well aware just how unpopular the new tax is to their respective electors. However, in both provinces, huge budget deficits are predictors of things to come. Finance Ministers in both provinces predict a return to balanced budgets within three (British Columbia) to seven (Ontario) years. This is most unlikely.

Most provincial budget deficit projections are based on faulty logic. With interest rates likely to rise from their historic lows, mounting debt, mounting debt servicing costs and possible debt downgrades, I suggest that the projections of most provincial Finance Ministers are barely worth the paper they are written on. In the case of Ontario, their projected return to a balanced budget has moved two years further out within the past year alone. So much for budget projections!

It will be very tempting for provincial governments across Canada to attempt to balance their books with an increase in taxes on goods and services. A one or two percentage point increase seems relatively benign and once the consumer adapts, it is soon forgotten. However, we must remember that in the case of HST implementation, the tax base broadens to cover far more goods and services than under the old PST/GST regime, costing consumers more. Unfortunately, repeatedly picking the pockets of the electorate allows governments at all levels to continue to spend irresponsibly. Rather than balancing budgets by cutting waste, we are allowing provincial governments to continue spending on meaningless and wasteful programs .

We must hold those we elect responsible for every dollar we "donate". If Canadian households budgeted the way our provincial governments budget, we would all be forced to declare bankruptcy.

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