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How will the HST affect the poor?
by Greg DeGroot-Maggetti [article
in ISARC e-newsletter, January 2010]
Greg is a member of ISARC’s Steering Committee, Co-Chair of the 25in5 Network for Poverty Reduction and works as a Poverty Advocate for the Mennonite Central Committee Ontario.
When the McGuinty Government tabled its poverty reduction legislation, the 25 in 5 Network for Poverty Reduction recommended it should require all new legislation, policies and programs be reviewed through a poverty lens to see the impact on people living in poverty and in reducing poverty.
That recommendation did not make its way into the Poverty Reduction Act. But with the introduction of the Harmonized Sales Tax (HST) and accompanying tax changes, there is an opportunity to take a careful look at what these tax changes mean for people with low incomes and for Ontario’s poverty reduction strategy.
Ernie Lightman and Andy Mitchell have done just that in a recent Canadian Centre for Policy Alternatives study, Not a Tax Grab After All: A second look at Ontario’s HST. At first glance, the new harmonized sales tax spells bad news for low income households. Since it harmonizes Ontario’s Provincial Sales Tax (PST) with the federal Goods and Services Tax (GST), many more goods and services, including things like heating fuel, will now be taxed by the province. As a rule, sales taxes fall more heavily on low income households because they spend most of their income, while wealthier households save more of theirs.
What Lightman and Mitchell found, however, was that when you take into account the new refundable sales and property tax credits and a reduction in the lowest personal income tax rate introduced with the HST, lower income households could pay less tax. “Poor families, those with incomes below the Low Income Cut Off (after-tax), come out ahead by around $140, while non-poor families will lose only about $60 per year on average.”
The refundable tax credits will be paid out in quarterly installments rather than in a lump sum once a year. And the quarterly payments are staggered with the GST credits. This will provide a more even, albeit modest, stream of income for low income households throughout the year.
The caveat is that you need to file a tax return in order to receive the refundable tax credits.
 “Low income families and individuals, many members of First Nations and others who do not tend to file tax returns will be significantly worse off as they will derive no benefit from the credits or the PIT [personal income tax] cuts.”
That means that without a clear strategy to make sure low income families and individuals actually receive the refundable credits, the HST could make them worse off.
That is why the 25 in 5 Network for Poverty Reduction has recommended that the Provincial Government undertake outreach efforts in partnership with communities, including First Nations communities, to ensure take up by low income Ontarians of the refundable sales tax and property tax credits.
Whether the Province undertakes those outreach efforts and evaluates the impact of the tax changes on low income households will be a test of the McGuinty Government’s commitment to its poverty reduction strategy. And this is an area where groups working to end poverty in Ontario should pressure the Government to do the outreach and make sure people receive the refundable credits.
Sources
25 in 5 Submission to the Government on Bill 218, the HST legislation
Not a Tax Grab After All: A second look at Ontario’s HST
Bill 218
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