TORONTO - The $1,000 cheques aimed at Ontario families to help cope with increasing prices for gas, home heating fuel and scores of other goods under a harmonized sales tax is an attempt to buy votes in the 2011 election, political observers said Thursday.
In a move that Ottawa had long called for, the merging of the eight per cent Ontario sales tax with the five per cent goods and services tax was announced in the provincial budget and will take effect July 1, 2010.
Many consumer goods will retain an exemption for Ontario's eight per cent portion of the new harmonized sales tax, including kids' clothing and shoes, car booster seats, diapers, books and new homes under $400,000.
However, that eight per cent will be added to other goods and services that are now exempt.
Gasoline, home heating fuel, real estate fees, car washing or repairs will all be hit. Even personal services such as haircuts, beauty treatments and dry cleaning will not escape the new tax.
To offset the impact, the budget outlined a novel one-time compensation of sorts for Ontario residents.
Families earning under $160,000 will qualify for three cheques totalling up to $1,000 that will be sent out over 12 months after the new HST comes into effect. Single people earning under $80,000 will receive $300 under the same schedule.
Although other provinces have harmonized their tax system with Ottawa in the past, none before has taken the unusual step of promising to cut cheques and send them to taxpayers.
The high income threshold for earners to qualify for the rebates means most Ontario households can look forward to something in the mail.
And Ontario's ability to convince Ottawa to retain tax exemptions on some family oriented items should also be welcomed.
But government opponents and political commentators implied cynical motivations Thursday on the part of Dalton McGuinty's Liberal government.
The last cheques from the Liberal government will be in mailboxes just two months before the start of the next Ontario election campaign, with a vote scheduled for October 2011.
"The Liberals are buying their way out of the unpopularity of the harmonized sales tax," said political scientist David Docherty, dean of arts at Wilfrid Laurier University in Waterloo.
Henry Jacek, a political scientist at McMaster University in Hamilton, agreed with Opposition claims that McGuinty is trying to bribe voters with their own money.
"Governments do this all the time," said Jacek. "It's essentially trying to make people feel good right before the election."
New Democrat Peter Kormos called the new tax a tryst between Stephen Harper and McGuinty that leaves the people of Ontario "screwed."
Interim Opposition Leader Bob Runciman said the $1,000 for voters was political sleight of hand and a bribe.
Harmonizing Saskatchewan's taxes may have been the death blow that forced Grant Devine from office in 1991, said David McGrane, assistant professor of political studies at the University of Saskatchewan.
"If the experience in Saskatchewan tells us anything it's that McGuinty should be stepping very warily when it comes to harmonization, it is something that can be extremely unpopular," McGrane said.
Harmonization became one of New Democrat Roy Romanow's key issues as he campaigned successfully to overtake Devine as premier and it was promptly abolished after the election.
Political scientists said they didn't think McGuinty would have any real trouble with voters for merging the two taxes, even if it does raise some prices for consumers.
They say Canadians are aware that these are special economic times and that many of those who rail against new taxes when they are introduced eventually accept them as a new reality.
"He survived the first one," Jacek said in reference to the controversial health-care tax introduced by McGuinty's government in the 2004 budget.
"These are different economic times (so) he may be able to nuance it."
McGuinty himself said this week that he wasn't worried about paying a political price for merging the taxes and that he planned to lead the Liberals into the October 2011 provincial election.
If there was any animosity among voters in Nova Scotia, New Brunswick and Newfoundland and Labrador after their taxes were harmonized in 1997, it's evolved into indifference, said Lars Osberg, chairman of the economics department at Dalhousie University.
"All these years later it's kind of faded into the background mist," he said. "Like most of the taxes, people just get used to it."
New Brunswick, Newfoundland and Labrador, and Nova Scotia adopted harmonization in 1997 following a deal with the Liberal federal government, which included a total of $961 million in funding over four years to offset lost revenue.
The federal government will give Ontario $4.3 billion over two years to counter the impact of the merged tax, which Finance Minister Dwight Duncan said would reduce provincial revenues by $2.3 billion over four years.
Duncan said that shows the Conservatives and NDP are wrong to call harmonization a tax grab.
He dismissed their accusations that the Liberals are tying to buy votes with the $1,000 payouts to offset the HST.
"The opposition parties don't want Ontario families and individuals to receive these payments, that's their position," said Duncan. "We think its appropriate and the transitional money will help those families."
The Ontario Chamber of Commerce said harmonization will save businesses about $100 million a year in reduced red tape and will eventually allow them to deduct about $5 billion for PST they currently pay on things like new equipment.
"It's going to free that up and allow them over time to reinvest, make themselves much more competitive by lowering their costs of productions," said chamber president Len Crispino.
Docherty warned that companies may not pass on those savings to consumers, but Crispino said everyone wants to lower prices now to attract customers.
"Businesses all over the place are looking at ways of reducing their costs and their costs to consumers so they become much more competitive," he said.
