Before I get pelted with angry comments, I should clarify that I’ve never been a big fan of Dalton McGuinty, though he represents our riding and is very popular here. I did not vote for the Ontario Liberals in the past two provincial elections and in fact, received some flak for posting that I don’t intend to. Though I’m not at all surprised at the angry backlash the proposal to harmonize the province’s sales tax with the federal GST is receiving in phone-in talk shows and online comments, I think Mr. McGuinty deserves credit for doing the right thing with this move.
Yes, it is true that the sales tax on many currently exempt items will be hiked. But, the government is recognizing the regressive nature of sales taxes and providing Ontario residents with low incomes with a significant enhancement to the sales tax and property tax credit. The budget also proposes a 1 percent cut to the Ontario tax applicable on the first $36,848 of income.
But, the most significant measure — and politically surprising in light of Mr. McGuinty’s past assertions that corporate tax cuts are a “non-starter” — in the budget is the deep cuts to corporate income taxes. Effective July 1, 2010, corporate taxes will be reduced by 2 percent from the current 14 percent and gradually drop to 10 percent over the next three years. All things being equal, corporate tax cuts will result in higher after-tax earnings and benefit investors. Note that taxes on eligible dividends are being increased. Experts also contend that many businesses will eventually pass along their savings on the sales tax on business input costs to consumers and the effect of harmonization on consumers should be quite modest. For instance, businesses will save an estimated $500 million in administrative costs alone — costs that are indirectly borne by consumers.
The transformation of the Mr. McGuinty’s government has been remarkable — cuts in personal income taxes, a simplified tax code, a business-friendly budget and even a reduction (albeit, modest) in the size of government. At least to me, Mr. McGuinty sounds like an attractive ballot choice in 2011.