How HST will permanently boost prices in B.C. & Ontario

Posted on 08. Jul, 2010 by in News

Globe and Mail Update Published on Tuesday, Jul. 06, 2010 3:00PM EDT

What the HST will mean
Last week’s introduction of the harmonized sales tax in British Columbia and Ontario won’t have a marked near-term impact on the economy, but it could change buying habits and will lead to a boost in consumer prices of 0.9 of a percentage point permanently in the two provinces, Toronto-Dominion Bank says.

“There may be a short-lived adjustment period as households have been bringing forward purchases to avoid paying the additional 7 per cent or 8 per cent and as they shift some of their purchases to goods not subject to a tax change,” TD economists Derek Burleton and Diana Petramala said in a report. “The strong positive benefits on business investment and the export sector will virtually offset the negative near-term adjustments that are likely to occur in consumer spending and in the housing market.”


Impact of HST on national consumer pricesImpact Impact of HST on national consumer prices

The two economists said overall prices in the two provinces are expected to rise by 1.5 percentage points immediately after harmonization, which has resulted in an HST of 13 per cent in Ontario and 12 per cent in B.C. But within the first three years, about half of that is expected to be offset by businesses passing on savings from input tax credits, leading to a permanent increase of 0.9 of a percentage point, TD said. That would also mean 0.4 of a percentage point on a national price level as the two provinces represent half the economic activity in the country.

Housing will be hit, they said, though they noted that many homebuyers rushed to beat the July 1 introduction.


Canadian housing startsCanadian Canadian Housing starts

Over time, they added, consumers can soften the blow by opting for “relatively cheaper goods and services.” In B.C., they said, restaurant food will be subject to an additional 7 per cent, but that won’t apply to basic groceries.

“Households may choose to purchase more food at the grocery store and eat in more often,” they said. “Or, when out at a restaurant, they may choose either restaurants with lower cost menus, or continue going to their favourite restaurant but choose lower cost items, mitigating the negative impact of the rise in the effective tax rate.”

 

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