Ontario-federal agreement worries residential-construction leaders across country; top bank economist also fears ‘stress’
Peter Simpson
Sun
Harmony, according to the the Concise Oxford Dictionary, is ”an agreeable effect of apt arrangement of parts.” Harmonization, in this case the blending of provincial and federal sales taxes, has the potential of becoming a wallet-draining ”arrangement” for new-home buyers in B.C.
I may be getting a little ahead of myself, but I have heard too many hints that an HST agreement between Canada and B.C. is being fine-tuned as I write.
Three months ago the finance ministers of Ontario, Dwight Duncan, and Canada, Jim Flaherty, signed a memorandum of agreement to harmonize Canada‘s and Ontario‘s sales tax. The Yours-to-Discover province will receive $4.3 billion in federal transfer payments for jumping aboard the harmonized sales tax train.
Ontario home builders and some prominent housing analysts believe Ontario embraced the HST too quickly and without considering how it would negatively impact housing affordability.
The (Ontario) Building Industry and Land Development Association thinks the ”massive tax grab under harmonization” will take ”$2.4 billion out of buyers’ pockets” in Ontario.
The Ontario Home Builders’ Association thinks the agreement ”a poison pill.” ”Housing is the only product that keeps on paying property tax after it is consumed. To cripple an already challenged new-homes market not only damages the provincial economy, it also hurts governments in terms of revenues.”
Letters from home builders and industry groups such as the Ottawa-based Canadian Home Builders’ Association (CHBA) have been landing on the desk of Prime Minister Stephen Harper, urging him to ensure Ontario harmonization is neutral for new homes and renovation.
Surrey builder and CHBA president Gary Friend has already written three letters to the prime minister, relating how harmonization will have an adverse impact on new homes, renovation and — a player not many are talking about at this point — purpose-built rental housing.
“The proposed Ontario HST will have the effect of increasing substantially the tax burden on rental housing. On a $250,000 rental unit, the net new Ontario tax revenues would be some $15,000. This contrasts with the $9,500 reduction in costs provided by federal measures implemented since 1999. Additional costs of this magnitude would lead to rent increases of $63 per month,” Friend writes.
And academics are weighing in on this issue. Noted housing analysts and economists Frank Clayton and Peter Andersen believe harmonization is a huge mistake that discourages home buyers.
In a special report – Home Truths: The Heavy Impact of Ontario’s HST on Housing – released by BMO Capital Markets Economics, deputy chief economist Douglas Porter wrote: “The proposed new harmonized sales tax in Ontario, set to begin in mid-2010, threatens to add further stress to the home-building industry – a sector that is already dealing with a suddenly very intense downturn.”
Last week, Flaherty met provincial and territorial finance ministers at Meech Lake to discuss the state of the Canadian economy and measures taken to provide stimulus. You can bet the Ontario experience was a hot topic, particularly when every province is trying to find ways to replenish diminished coffers. That $4.3 billion Ontario will stuff into its pockets must look mighty sweet.
Before the recent B.C. provincial election, I asked all major-party candidates for their positions on harmonization of sales tax.
The Green party did not respond. The NDP said it had “no current plans to promote an HST in B.C.”
The Liberal Party offered this response: ‘ . . . the BC Liberals are also mindful that a harmonized GST would reduce the provincial government’s ability to unilaterally adjust sales tax rates. The harmonized GST would make it harder for future provincial governments to lower or raise sales tax rates, which reduces flexibility. In short, a harmonized GST is not something that is contemplated in the BC Liberal platform, but we are committed to improving the tax system.”
It’s the “but” that bears watching. Might it mean, if improving the tax system means receiving billions of federal dollars, we could be convinced to hold out the bucket. Just watch how this story plays out.
Peter Norman of Altus Group Economic Consulting, in a report to the Canadian Home Builders’ Association of B.C., commented there is significant risk that a harmonized sales tax in B.C. would impose undue harm on the housing sector. “Our advice to B.C. regarding a move to HST is to consider carefully the manner in which taxation of residential investment is handled,” said Norman.
Wise words. So, if the B.C. government is even thinking about tax harmonization – and you would have to be a little naive not think so after the Meech Lake meeting of finance ministers – it should take seriously the potentially damaging impact on housing affordability. For the sake of harmony, focus on neutrality.
Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders’ Association.
E-mail: [email protected]
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