The Manitoba government has decided that tax harmonization – a federal proposal to amalgamate the GST and the PST – will take away provincial tax control and hurt consumers along the way.

“We are no longer considering the option of an HST,” said Rosann Wowchuk, Manitoba minister of finance. “When the federal government makes a proposal we must study it and as we see it right now, Manitoba would lose money.”

Manitoba would lose over $240 million in tax revenue according to a C.D. Howe Institute report, she said.

This makes Manitoba one of few provinces not going ahead with harmonization. Both Ontario and British Columbia plan to adopt an HST by 2010, while the three Atlantic provinces continue to implement a combined HST rate.

The proposal to harmonize would have seen Manitoba’s seven per cent PST eliminated and added to the five per cent GST to create an overall HST of 12 per cent.

Meanwhile, the government seems to have made a decision, but some remain convinced that harmonization could benefit the province.

Businesses, particularly small businesses, are widely considered the main benefactor in the adoption of an HST.

“Businesses would definitely save money on administering taxes,” said Sohrab Abizadeh, a professor of economics at the University of Winnipeg.

According to many, including the federal government, businesses are currently subject to convoluted tax regulations because they are forced to administer two different taxes (PST and GST), based on the product or service. Harmonization would eliminate this problem by giving businesses only one rate to administer.

Manitoba businesses would no longer have to pay the PST on operating materials (computers, cash registers), which would be covered under the federal input tax credit, along with the GST.

“An HST would reduce the cost of bookkeeping for businesses substantially,” said Abizadeh. “However, consumers will end up paying [additional] tax on services.”

The Ontario Chamber of Commerce recently estimated that an HST would cost Ontarians $905 million in additional sales taxes a year, while the bill for companies would reduce by $1.6 billion.

Purchases that are currently exempt from PST – from haircuts to essential items like children’s clothing and diapers – would be charged an additional seven per cent under harmonization in Manitoba.

“Taxation is about more than just raising revenue,” said Lynne Fernandez, an economist at the Manitoba office of the Canadian Centre for Policy Alternatives. “It can be used as an incentive or disincentive for certain behaviour … harmonization decreases this ability.”

Whatever the federal government chooses to tax through the GST, the province would be obligated to include the PST in the charge. This will diminish the province’s ability to use tax-exempt services to encourage better behaviour and purchases, Fernandez said.

There have been several suggestions over possible changes to the HST rate, or the adoption of tax rebates for consumers, but Manitoba remains unconvinced that harmonization is the answer for the provincial economy.

“We cannot harmonize unless there is a different formula in place,” said Wowchuk. “Right now we don’t see any advantage for the general public. In fact, we see a disadvantage due to declining revenue.”

Published in Volume 64, Number 4 of The Uniter (September 24, 2009)