Remarks by the Honourable John Wilkinson, Minister of Revenue, to the Toronto Board of Trade

Thursday, September 17, 2009

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Introduction

Good morning and thanks for your warm welcome.

I want to thank Board of Trade Chair William MacKinnon, President and CEO Carol Wilding, and the Board of Directors of the Board of Trade for inviting me today.

I'm glad to get this opportunity to speak to so many Toronto business leaders.

As you know, the Ontario government is introducing the biggest and most comprehensive tax reform package in decades. One of our most important goals is to help Ontario businesses become even more competitive, so you can produce more, export more, and — most importantly — create more jobs.

I want to start with a question. After the recession, do you think the economy will be the same as before or fundamentally different? Raise your hand if you think it will be fundamentally different.

We agree. Ontario businesses will have to compete differently — in more markets, more efficiently, and more aggressively — to trade more, and create more jobs. Our tax reform package will help.

Why the HST and why now?

I'm a big believer in the old saying that 'if it ain't broke, don't fix it.' But the sales tax system we have been using since 1961 is broke — and it does need to be fixed.

We are the only jurisdiction in the world that exports 80 % of what we make, yet still taxes the inputs needed to make these goods and services in the first place.

Quite simply, the current sales tax system is a hindrance to Ontario businesses. One we can no longer afford.

As the Premier has said repeatedly, if we were to create a 21st Century taxation system from scratch, we would not come up with the system we have now.

In almost all of the advanced economies in the world today, there is only one sales tax and it is a value added tax. In fact, if a country wants to join the European Union, they won't even be considered unless they introduce a value-added sales tax.

More than 130 countries now have the tax system we propose. The only OECD member country that hasn't adopted this tax system is the United States.

Ontario cannot afford to fall behind. We're still listening to music on an 8-track when the rest of the world has an i-Pod. We can't attract investment and jobs in the 21st century with a tax system from the 1960s.

Look at the rest of Canada. Our sister provinces of Quebec, Nova Scotia, New Brunswick, and Newfoundland and Labrador have all adopted a harmonized sales tax.

How has it worked out? A study by a U of T professor found that per capita investment in the three Atlantic Provinces that adopted the HST rose by more than 11% in the year following implementation, compared to the other provinces. And investment in machinery and equipment increased by over 12% a year.

Is it any wonder that B.C. has decided to follow Ontario's lead and introduce a harmonized sales tax? In the words of B.C. Finance Minister Colin Hansen: "B.C. cannot be left behind."

Business people know this. Carol (Wilding) greeted the tax reform package by saying "There are big bold moves in there that will make quite a significant difference." Many members of the Board of Trade have been calling for it for years.

So has the Ontario Chamber of Commerce. They say — and I quote — the proposed harmonized sales tax "will prove to be the biggest single stimulus for the Ontario economy." That's why they have launched a campaign, with a website, to support it.

Just this week, Telus released a statement strongly supporting the HST. The company's CFO said, and I quote, "the HST will take costs and double-taxation out of our business, and thousands of other businesses across the province. That will make Ontario a more attractive and competitive place to do business, encouraging innovation and price reductions for consumers and exports."

He went on to say that savings from the HST will allow Telus to invest more than previously possible in Ontario. And they're already investing $300 million in wireless and wireband infrastructure this year.

Remember how the GST generally works for your business. You receive input tax credits for the GST you pay on your business inputs and capital investments. So no matter how many times a business pays GST on a good or service, the bottom line is the final consumer only pays 5%.

Contrast that with the current PST. In general, it offers no credits for tax already paid on inputs. So everyone is paying a tax on a tax on a tax. That adds up to a big disincentive.

While consumers believe they are only paying 8% PST, in fact the final price includes layers of hidden taxes.

And what's worse, the more value businesses add, the larger the hidden tax.

Now, more than ever, we need to encourage value-creation and innovation, not tax it away.

What is the proposed comprehensive tax reform package?

That's why, in our 2009 Ontario Budget, we introduced a comprehensive tax reform package.

One sales tax, at one rate, on one common set of goods and services, payable to one level of government, with one set of regulations and paperwork, administered by one set of civil servants.

That's a whole lot cheaper for government and business, taxpayers and consumers…than two sales taxes, at two different rates, on two differing sets of goods and services, payable to two levels of government, with two sets of regulations and paperwork, administered by two sets of civil servants.

The savings in administration costs for business alone would come to about half-a-billion dollars a year. That's a big boost — not just for business, but ultimately for workers and consumers.

Now I know my political opponents are trying to spin a myth. They are trying to create the impression that our tax reform comes down to nothing more than increased sales tax for many items.

That's a myth.

The fact is, we are proposing to permanently cut income taxes for people and all businesses, both large and small, in 2010.

The fact is, we are proposing to permanently cut the small business corporate income tax rate from 5.5% to 4.5% next year — and eliminate the small business deduction surtax. This would make Ontario the only province to eliminate this tax barrier to successful small businesses, the number one generator of jobs in Ontario.

We are proposing to drop the general corporate income tax rate aggressively — from 14% to 10% by 2013. And we are eliminating the capital tax.

When the proposed tax package is fully phased-in, the tax that companies pay on their income from new investment would be cut in half. Our rate would be less than half of the U.S. average. And below the OECD average.

Now that's a competitive advantage that will mean more exports — not only to the U.S., but to Europe and Asia. And that means more jobs here in Ontario.

Helping Families Make the Transition

As much as this is undeniably the right thing do, we know it is a big change.

Like all big changes, it comes with its share of challenges.

One of biggest is the fact that the 8% provincial tax would apply to some items that are currently exempt.

We have been very careful to limit the impact of this. That's why consumers would not continue to have to pay the provincial portion of the sales tax on some important items that are currently exempt from the PST — like children's clothing and footwear, diapers, kids' car seats and booster seats, books and feminine hygiene products.

And the sales tax would not be charged on a range of items to which the GST does not apply, such as basic groceries, prescription drugs and medical devices.

But some other items would be included in the new proposed harmonized sales tax system.

Of course, some of our opponents would have you believe that the story begins and ends there. Again, that's a myth.

The fact is, the proposed harmonized sales tax is part of a comprehensive tax reform package of permanent tax cuts and credits to help people adjust.

Next year, we are permanently reducing the personal income tax rate from 6.05% to 5.05% on the first $36,848 of taxable income. That would give Ontario the lowest provincial income tax rate in the first income bracket of any province.

And this would apply to 93% of Ontario income taxpayers.

What's more, we are proposing that those who can least afford a sales tax increase would qualify for new and enhanced PERMANENT tax credits targeted to low income Ontarians, middle income families with children, and seniors.

The new Ontario Sales Tax Credit would provide up to $260 a year — every year — for each adult and child in low and middle-income families.

The Ontario Property Tax Credit would provide an additional $270 million in property tax relief every year to low to middle income homeowners and tenants.

As well, we are doubling the Ontario Senior Homeowners Property Tax Grant for qualifying seniors.

But that's not all. When government stops charging taxes on taxes, over time consumers benefit.

The same study I mentioned by a U of T professor found that when the Atlantic provinces harmonized their sales taxes with the federal GST, business cost savings were passed on to consumers.

But we recognize that this change would not be instantaneous.

That is why the federal government is transferring $4.3 billion to Ontario to help with the transition. Think about that a moment. If a Conservative Government in Ottawa is giving billions of dollars to a Liberal government in Ontario, they must see it as important to making Canada more competitive.

We're going to make the transition as smooth as possible. We're proposing to give families with less than $160,000 of net income a year three tax free payments totaling $1,000. Single people with less than $80,000 of net income a year would receive three tax free payments totaling $300.

How Business Can Help

We stand at a pivotal moment in Ontario's history — and we face a clear choice.

This is the most important tax reform in a generation to increase the province's competitiveness.

It would strengthen our businesses when they need it the most and ensure our future prosperity.

What this means to business is:

• The removal of about $4.5 billion a year in embedded taxes when fully phased in; and
• About $2.5 billion a year in corporate income tax cuts.

On top of that, the capital tax is being fully eliminated on July 1, 2010 — providing an additional $1.6 Billion a year in tax relief.

This adds up to more jobs, more investment and a stronger Ontario.

The bottom line — this will result in a more prosperous future for our children.

Proponents of the status quo admit the world has changed — but deny we should change with it.

You know better. You know what it takes to compete.

A harmonized, single sales tax will help you compete. It will help you create jobs.

If you haven't already, you should consider adding your voice to the debate.

You need to explain to people why you don't want to compete with one hand tied behind your back. Why you can't compete to win when you have to pay taxes downstream on taxes that were already imposed upstream.

You need to explain how this tax reform package will help you invest more, produce more and create more jobs for our families.

Conclusion

Ontario has a choice. We could refuse to fix what's broken. We could resign ourselves to Ontario's businesses falling behind the global competition.

Or we can choose to embrace a 21st century tax system for a 21st century economy.

The cynics out there tell us it would be better not to adapt…

…that we should shy away from embarking on big, bold, transformative change…

…because it's politically risky and it doesn't fit neatly into a sound-bite.

The McGuinty government chooses to do the right thing.

We choose to believe that if we empower our business people, people like you…

…you will invest more, will produce more and will create more jobs for our families.

That's why we're taking a tax system that was made for a bygone era…

…and rebuilding it to help secure Ontario's prosperous future.

The harmonized sales tax is the right thing to do.

And now, more than ever, is the right time to do it.

Thank you.

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