Canadian Pizza Magazine

Features Business and Operations Finance
from the editor’s desk: Sept/Oct 2009

No harmony in HST


September 18, 2009
By Laura Aiken


Topics

The Maritimes did it. Ontario and British Columbia plan to be doing it
as of July 1, 2010. Perhaps the rest of the provinces will follow suit.
It’s Harmonized Sales Tax (HST), but it’s tough to find any harmony in
this government cash grab.

The Maritimes did it. Ontario and British Columbia plan to be doing it as of July 1, 2010. Perhaps the rest of the provinces will follow suit. It’s Harmonized Sales Tax (HST), but it’s tough to find any harmony in this government cash grab. 

In Ontario, most goods previously subject to five per cent GST will have a 13 per cent HST rate instead. In British Columbia this number will be 12 per cent. In Ontario, restaurant meals over $4.00 are already subject to PST so the direct sticker shock won’t be as directly evident to consumers as in British Columbia where all restaurant meals have been exempt from PST. There, diners are only used to seeing the GST on their bill. Fresh pizza in B.C. will instantly cost seven per cent more in 2010 than 2009. Basic groceries remain tax free.

The HST is designed to streamline the cost of doing business, and it appears as though it will simplify the cost of living in these two provinces by making it even more expensive across the board. What are these governments thinking in slapping a premium on life as we recover from a recession? The federal government refers to provinces that have blended their taxes in the Maritimes as participating provinces. This connotation immediately denotes that the rest of the country is a bunch of non-participators in the fed’s great tax plan. It’s key to note that HST was a net benefit to restaurant operators on the eastern seaboard because it resulted in a lower sales tax rate.

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“The PST is an outdated, inefficient and costly tax, some of which is hidden in the price of goods and services and passed on to and paid by consumers,” B.C. Finance Minister Colin Hansen said in a press release. “Evidence from the Atlantic provinces showed that the hidden tax is removed very quickly, with the majority of the savings passed through to consumers in the first year.”

Some operators in Ontario will benefit from the package of tax changes (corporate and personal tax cuts, etc.) that were included in the budget, explained the Canadian Restaurant and Foodservices Association (CRFA) via email. However, adds the CRFA, the input tax credits that are part of the HST will be of little benefit to restaurant operators, since their two biggest costs (labour and food) don’t qualify.

The unfairness in implementing HST for foodservice is as plentiful as produce at a farmer’s market. Groceries will have even more of advantage than they do as consumers seek to avoid further taxation, even though the reality is that few can eat every meal at home and it’s ridiculous that they are penalized with taxes for being hungry on the road but not in the grocery store. And what about tipping? Will Canadians be feeling a little stingier in 2010? Will operators be forced to pay their servers more to retain them if tipping averages plummet?

Over time consumers will become acclimatized, the same way paying upwards of a dollar at the pumps lost its shock value over time. We saw how the radical shift away from gas guzzlers to gas efficient beat up the automotive industry. Now we’ll see how consumers adjust their spending in the new tax bracket. People look at the total when they take out their wallet. They look at the taxes, but the total is still the total and that’s the bottom line that hurts. Change in habits can become permanent evolutions in behaviour when people know they have to adjust to long term to market changes. Consumers may just continue to dine out less.


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