Whether or not you think the HST is a good or bad tax, one thing seems patently unfair about it: the lack of inflation indexation forthe threshold at which rebates kick in on purchases ofnew houses ($400,000 in Ontario) and the threshold at which businesses have to register and collect HST ($30,000 in Ontario).
Over time, as inflation progresses, more and more homebuyers and business will find themselves above the thresholds and responsible for remitting more HST. In short, the HST has some covert tax grabs built into it. And they will be quite substantial judging from the GST experience.
The threshold for new houses
In the case of the GST, thetax grab has been huge. There was a 57% gain in Statistics Canadas New House Price Index from 1991 to 2008. If the lower threshold of $350,000 for new house purchases had been adjusted for this increase, it would have risen to $550,000, according to a study sponsored by the Canadian Home Builders Association(CHBA).
A family that bought a house for $450,000 in 2008 thus overpaid substantially on GST. They paid at the full 5% rate, or $22,500. But if the threshold had been indexed, they would have qualified for the rebate and avoided $8,100 of that amount. Not a whimper was heard about this plucking of the chicken yet if the government overtly raisedtaxes by such an amount, there would be a clamour.
Add up all the overpayments, and the federal government received roughly $320 to $330 million in GST revenue in 2009 in excess of what would have been received if the thresholds had been indexed, concluded the CHBA.
Threshold for HST registration
The threshold for participation in the GST has been frozen at $30,000 in sales since the GST was launched in 1991. Businesses under $30,000 were not required to register in recognition of the burden the tax created for small businesses and the government itself. Yet the threshold remains the same for the HST.
If this threshold had been indexed to inflation, it would be about $55,000 according to research from the Canadian Chamber of Commerce(CCC). But even this threshold is too low in terms of competitive positioning with trading partners. The thresholds (in Canadian dollars) are much higher in Australia ($85,300), France ($123,600), New Zealand ($56,000) and United Kingdom ($116,140), notes the CCC
Smaller businesses face a proportionally higher burden complying with a harmonized tax. By increasing the threshold, administrative costs and compliance burdens can be reduced making small businesses more competitive, argues CCC. And since there would be fewer businesses for civil servants to process and monitor, there would be a smaller administrative cost to the HST. The CCC urges that the HST threshold be raised to $75,000 and indexed to inflation.
Government knows better
It would be too simplistic to attribute the lack of HST indexation to an oversight on the part of the federal and provincial governments. Indeed, when the GST was introduced in 1991, the federal government acknowledged the problem with unindexed thresholds and made a commitment to adjust them. As the federal governments Technical Paper on the GST(1989) noted:
The government will review these thresholds at least every two years and adjust them as necessary to ensure that they adequately reflect changes in economic conditions and housing markets.