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Higher taxes last thing Canada needs This is my July column for online magazine, The Canadian Business Journal. To check it out, go to canadianbusinessjournal.ca BY LINDA LEATHERDALE July 1, 2009 — Oh Canada — we live in a great country. Or as rockabilly icon Rompin Ronnie Hawkins says, Canada is the “promised land.” In his newest song, Ole Love, to be released soon, the rock 'n roll legend who lit up Toronto's Yonge Street in the 1960s and 70s, pours out his love for Canada, which he made his home after moving from Bill Clinton's Arkansas to find fame and fortune. It's true, Canadians can pride themselves on living in one of the wealthiest nations in the world, as well as enjoying one of the highest levels of economic freedom. But, Canada is also home to big governments, big bureaucracies and big oligopolies, all with a big price. As the slogan goes, “Tax Me, I'm Canadian.” Advocates of lower taxes and smaller governments claim the more money you leave in consumers pockets, the better the economy. And hence, governments will net more tax revenue – particularly when all sectors are firing on all cylinders. But, like every other developed nation, Canada has been hit hard by a global economic tsnaumi, sparked by greed and corruption in the U.S. subprime lending crisis, plus fallout from yet another world energy shock with black gold hitting a record US$147 a barrel last July. This year, Canada will be lucky to see 0.5% GDP (gross domestic product) growth — the lowest in 60 years, while doomsayers warn it's not the GR (global recession) word we need to fear, but GD (global depression). So, it boggles the mind that political leaders remain determined to lift more money from the pockets of hardworking families, many who've been hit with a job loss, as pink slips replace pay hikes and Freedom 55 is a boot out the corporate door on your 55th birthday. Bottom line is we are over-taxed, with an average Canadian family earning $88,432 this year paying out $37,699 in total taxes. That's a obscene tax rate of 42.6%. Or put another way, we have to work until June 6 to hand over our pay to foot the tax bill, meaning we're working for the taxman for almost six months of the year, then we get to keep our hard-earned money. Meanwhile, south of the border, Tax Freedom Day for our largest trading partner, the U.S., falls on April 13, for a total tax rate of 28.2%. To see just how highly taxed Canadians are, go the Fraser Institute's website, www.fraserinstitute.org to view a video. It may be humourous, but believe it's no laughing matter. If there is a silver lining it's that Tax Freedom Day now falls on June 6, which makes us better off than a few years ago when it fell on June 21. Federal finance minister Jim Flaherty, the hard-nosed Tory finance minister from the days of Ontario's Common Sense Revolution who believes in lower taxation, credits his cut in the hated GST (goods and services tax) from 7% to 5%, plus cuts in personal income taxes, the new child tax credit, pension income splitting, seniors' tax savings, his new tax free savings account, plus other tax saving initiatives like the home renovation tax credit. But while Flaherty speaks of the benefits of lower taxes, he's behind a push for all provinces to follow the lead of the East Coast, and harmonize that hated GST with provincial sales taxes. Lobby groups, like the Ontario Chamber of Commerce, want us to believe this move will be good for businesses. Afterall, in 1990 when Brian Mulroney's Conservatives refused to listen to 90% of Canadians who said “no” to a GST or value-added tax — Canada became the only nation in the free world forced to collect, remit and administer two sales tax regimes — one federal, one provincial. What a nightmare for businesses. The only province to escape this madness was Alberta, where there is no provincial sales tax. The architects of the GST tried to convince us this new tax would be good for Canada, since it replaced the hidden manufacturers sales tax. But, what they didn't want taxpayers to know was how Ottawa quietly hiked the MST to 13.5%, to make it more palatable to usher in the 9% GST which was later reduced to 7% and promoted as a debt-slaying tax. Voters weren't fooled. Their anger reduced the Conservatives to a Party of Two when the next election rolled around. Now, with harmonization, taxes surely will head higher as services never hit by a PST will now be taxed. In Ontario, for example, where the 5% GST will be harmonized with the 8% PST in July 2010, a host of services like lawyers' fees, will now be slapped with a 13% tax. The Ontario Real Estate Association estimates the cost of a real estate transaction will jump by $2,000. Worse, though homes valued under $400,000 will be exempt from the blended tax, Ontario's Building Industry and Land Development (BILD) Association estimates harmonization will add more than $46,000 to the price of a $580,000 new home in Toronto. Believe me, in high-priced Toronto, $580,000 is an average home, not a mansion. Add in Toronto Mayor David Miller's new municipal land transfer tax, that's doubles the pain of Ontario's land transfer tax — and it's like nailing the coffin shut on one sector of the economy that seems to be weathering the storm, even though sales and price gains have dropped off. This spring we've watched the market limping to a recovery. At a recent Ontario Home Builders Association seminar, experts warned harmonization will kill the golden goose, and force the industry, especially home renovators, into the black market. Now, here's where it will also hurt — especially in Canada's manufacturing heartland, that's bleeding from job losses in the auto sector. The price of gasoline — which is again flirting with record highs, even though oil prices have dropped from US$147 a barrel to the $73 range — will head higher as the GST at the pumps is blended with the PST. Heating fuels will also rise. Electricity prices, which have been going through the roof, will no longer be exempt from the PST, making hydro more expensive. Also no longer exempt will be tobacco, personal services like haircuts, membership fees for clubs and gyms, newspapers and magazine, taxi fares and the professional services of lawyers, architects and accountants. Real estate commissions will also be taxed. The only things to remain exempt will be children's clothing and footwear, children's car seats and car booster seats, books, diapers and feminine hygiene products. Basic groceriess, rent, condo fees, prescription drugs, and medical devices also will remain exempt from both PST and GST. Buying a resale home will be exempt from PST. The Ontario Chamber of Commerce estimates a fully blended tax system would cost consumers $905 million in higher taxes, but save companies $1.6 billion a year. Yet, many business owners remain skeptical. One remarked on a website, “It is the end consumer that will end up paying more and it is the end consumer who will decide whether they are willing to pay more tax on something that is not a necessary need or want. In the end businesses may end up losing.” Canada's economy is often referred to as a resource-rich economy. The oil patch and Saskatchewan's potash keep money flowing. But the manufacturing sector and its high-paying jobs are dying, while Ontario, the most populated province and once the country's economic engine, is now a have-not province. The reality is while Bay Street and Wall Street get bailouts paid for by taxpayer dollars, Main Street's taxpayers are losing jobs and drowning in a sea of household debt, now over $1 trillion. These consumers account for two-thirds of our economy. Higher taxes are the last thing Canada needs, especially now. Revolt anyone? TAX FREEDOM DAYS AROUND THE GLOBE India – March 14 Australia — April 22 United States – April 13 Estonia — April 24 Uruguay — May 11 South Africa — May 12 Hungary — May 20 New Zealand — May 21 Spain — May 21 Slovakia — May 22 Bulgari — May 27 Brazil — May 27 Lithuania — May 23 United Kingdom — June 2 Belgium — June 8 Czech Republic — June 11 Crotia — June 13 Canada — June 6 Slovenia — June 17 Poland — June 25 Germany — July 8 France — July 16 Israel — July 15 Sweden — July 29 Norway — July 29 Linda Leatherdale is one of Canada's most trusted financial voices, who can be reached at lindaleatherdale.com. She is also Vice-President of Marketing and Business Development for Cambria Canada. (www.cambriacanada.com)
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