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Politicians and statistics

GB Geo-Blog

Politicians and statistics

There are lies, damned lies and statistics. To this I add: “and how politicians use statistics”.

Dalton McGuinty, the Premier of the province of Ontario, finally admitted that the harmonization of the provincial retail sales tax with the federal government’s goods and services tax, which is to be effective on July 1 of this year, will cost Ontario consumers more. He made this admission when confronted yesterday by the opposition New Democrat Party (NDP). The NDP released a study, based on analysis by Statistics Canada, that suggests the harmonized sales tax will cost the average family in Ontario an additional $792 annually.

DUH? Even the government’s own projections last year showed that it stood to gain over $4 billion annually from this harmonization, largely as a result of the expanded coverage of the tax.

The Premier and his Revenue Minister claimed, in response, that when the personal tax cuts and various sales and property tax credits are considered, the aggregate effects will be neutral for most Ontario taxpayers. The problem here is that thee two men are mixing apples and walnuts (sounds like the makings of a Waldorf salad). The tax cuts and sales tax harmonization should be considered independent of each other. Both might be good policies on their own merits. However, if tax harmonization was needed to fund the income tax cuts, then good and bad policies might have been mixed.

I doubt that Government of Ontario actually analyzed whether tax harmonization was the best policy option to fund the income tax cuts. And if they were, why not reduce income taxes even more, and raise the province’s sales tax from 8% to 10% in addition to expanding it base?

McGuinty and his team further defended their actions by claiming that tax harmonization eventually would create up to 600,000 jobs. These numbers were produced by Jack Mintz, who runs the School of Public Policy at the University of Calgary.

I will leave for another blog a discussion of the logical flaws in his theoretical analysis. For today I will look at the role f tax harmonization. In his November 2009 study, which has been quoted extensively by the Ontario Government, Mintz pointed out that “Ontario will see its effective tax rate on new investments by medium and large businesses plummet from 33.6% in 2009 to 23.7% in 2010 and then to 18.5% by 2018.” It is the reduction in the effective tax rate on new investments, especially this year, that drives his job creation conclusions.

However, the reduction in the effective tax rate in Ontario results largely from the reductions in the federal and provincial corporate income tax rates and the elimination of the province’s capital tax. Sales tax harmonization has a negligible effect at most.

Indeed, this might not even have any impact. According to a study by TD Economics (September 2009), the tax savings for business resulting from harmonization will be passed on in lower prices to consumers. If TD Economics is right, and the Government of Ontario has been touting this report as well, then harmonization will not reduce the effective tax rate on new investments. On the other hand, if TD Economics is wrong, Premier McGuinty cannot claim that harmonization will not lead to higher prices for consumers. But the resulting impact on the effective tax rate will be marginal, and almost non-existent in 2010 –  the year when Mintz argued there would be the largest reduction in the effective tax rate. Consequently, harmonization could not contribute much at all to creating new jobs.

Despite his best efforts, it is obvious that Premier McGuinty cannot whistle and chew gum at the same time.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.


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