HST Is Part Of Overall Tax Package

In a previous article, we discussed the HST that became effective on July 1, 2010 that was applied to many goods & services.  It is important to note that the HST was part of an overall Comprehensive Tax Package in Ontario.  The main elements of the overall package in addition to the HST, were personal income tax cuts, sales tax credit, property tax credit, and transition cheques.
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Personal Income Tax Cuts:

The personal income tax cut was on the lowest tax bracket, and applies to the first $37,106.  It was reduced from 6.05% to 5.05%.  That indeed is good, and does give Ontario the lowest provincial tax rate on the first $37,106 of taxable income.  However, it is hefty 9.15% on the next $37,108, and 11.16% on the amount over $74,214.

British Columbia has 5.06% on the first $35,859 of taxable income, 7.7% on the next $35,860, 10.5% on the next $10,623, 10.5% on the next $10,623, 12.29% on the next $17,645, and 14.7% on the amount over $99,987.  For the majority of the middle income earners (largest population) Ontario’s personal income tax rates are not better than BC’s.  Although, Ontario & BC does have lower personal income tax rates than the other provinces, but also have much higher costs of living.  The personal income tax cut targets mostly the lowest income earners, and the lower-middle income earners.  The majority of the middle income earners still see their wages being garnished fairly significantly.  For most middle income families, they will still see less money in their pocket going forward.  There is a bit of break on one side here, but they are still getting hurt by the increase in sales tax.

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html#provincial
http://news.ontario.ca/rev/en/2010/01/personal-income-tax-cut-now-in-effect.html

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Sales & Property Tax Credit:

Unfortunately, the Adjusted Family Net Income levels of the Ontario Sales Tax Credit (OSTC) are set way too low to help the hardest working bunch, the low and middle income citizens.  If you are a single individual with no children, the credit will be reduced by 4% of your adjusted net income over $20,000. If you are a single parent, or are married or living common-law, the credit will be reduced by 4% of your adjusted family net income over $25,000. The CRA has a handy chart to estimate the annual credit taxpayers are entitled to receive.
http://www.cra-arc.gc.ca/bnfts/rltd_prgrms/fq_ntr_stc-eng.html#q5

The Property Tax Credit suffers a similar problem:
http://www.rev.gov.on.ca/en/credit/ptc/index.html

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Problem Is Inefficiency & Abuse Of The System:

Governments usually take the easy way out when it comes to managing money.  What I would like to see is more effective methods to curb the abuse of government assistance.  Many many low income earners are not getting the help they need, while those who abuse the system do.  More and more money is spent with the intent of helping “low income” families, but the families who really need it rarely get it.  Inefficient spending by the government is also another issue, which contribute to overrunning annual budgets.  It is easier just to keep squeezing from the largest group.  However, doing so has negative consequences.  The underground economies will increase even more (under the table cash deals), as well as an increase in illegal tax avoidance and tax fraud.

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The Largest Tax Base – The Middle Class:

It is important to note that taxation is the main revenue generator for governments. Hence, the ministry responsible for taxation is the Ministry of Revenue.  Because governments (like businesses) want to harvest as much revenue as possible, it only makes sense that they want most of their revenue to come the largest portion of the population.  The largest portion of the population happens to be the middle income earners (lower and upper middle), and therefore they provide the largest tax base. It also wouldn’t make much sense to give significant cuts to that group, as cuts to the group that make up most of the tax revenue would result in less revenue being collected.  Therefore any cuts must be offset by more increases, where the net increase/decrease must be positive (in order to collect more for the tax year).

Increasing the methods of revenue collection (either in taxes or fees) that would affect mainly the other two groups (low and high income earners) wouldn’t be very productive.  Low income earners do not make a lot and therefore cannot, and do not have enough money to make a significant difference in the overall taxation revenue collected.  Most social programs are geared towards helping them earn more anyways, so that would also be counter productive to those efforts.  Collecting more from the high income earners presents a conflict of interest to those in high positions in the government.  The higher up in the government food chain you go, the more you earn (total compensation not just base salary).  The higher up in the government, the more influence you have on policy decisions.  This means that the ones deciding where to increase or decrease tax revenue collections, would be affected if they make decisions that affect the higher income earners.  Increasing the revenues collected from the high income earners would affect those who determine policy decision.  The high income earner group, is very small in comparison  to the largest group (middle income), and also would not make a significant difference in the overall taxation revenue collected.  It is also a fact that most of the high income earners are successful business owners.  Targeting them would also leave less incentives to remain in the country, and also give them more incentives to find ways of avoiding taxes (through loop holes and more tax efficient methods).  Why would we want successful people to leave when they are the ones creating the jobs?  The answer is we don’t.

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The Middle Class Milking Station:

Again, it is unfortunate but wherever the herd is, the milking station is set up there.  The middle class is the largest herd and will always be milked the most. That will never change.  People must look to become part of the smaller groups (low & high income earners).  Being a low income earner (a real legitimate low income earner, not one who abuses the welfare system) is not desirable.  But by becoming more educated and accumulating more knowledge, one can jump groups to the high income earners.

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Related Articles:
Happy Birthday Canada, Happy HST Day Ontario & BC!
Investment & Economic Outlook 2010

Thanks & Happy Investing! — The Investment Blogger © 2010

Author: The Investment Blogger

I’m a private investor, who developed the “function-centric investing” paradigm. I am an investor who blogs a little here and there, rather than a blogger who invests a little here and there. I'm passionate about investing and sharing investment knowledge!

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