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Harmonized Sales Tax in Canada

An issue of some contention — one that has resulted in an intersection between the areas of federal government tax policy and Canadian federalism — is the merging of separate federal and provincial sales taxes into a single tax, known as the Harmonized Sales Tax (HST). The HST represents an important form of cooperation between different levels of government and, at the same time, a source of debate — particularly in the realms of provincial politics. This article provides an introduction to the HST and explores topics including its origins/history and key debates.

What is the Harmonized Sales Tax?

An overview of the HST as a form of taxation in Canada

History of the Harmonized Sales Tax in Canada

From the MST to the GST to the HST

Administration of the Harmonized Sales Tax in Canada

Federal and provincial participation in the HST’s administration

Debates Concerning the Harmonized Sales Tax

Provincial sovereignty and impact on consumers and taxpayers

Sources and Links to More Information

List of article sources and links to more on this topic

What is the Harmonized Sales Tax?

An overview of the HST as a form of taxation in Canada

Forms of Taxation in Canada

Taxation is a mechanism used by governments to raise revenue in support of government programs and services. In this context, taxation is a compulsory financial payment imposed on individuals, businesses, and organizations.

Governments in Canada impose many different sorts of taxes. One of the most well known of these is personal income tax, an annual charge on an individual or household’s income or amount of money earned over the course of a year. This includes wages, pensions, capital gains (income earned from selling a personal asset, such as real estate or stocks), and subsidies (such as welfare or unemployment insurance). Personal income taxes typically represent the largest source of revenues for the federal government.

Another important form of government taxation is corporate tax. This includes a range of taxes levied on businesses, such as corporate income tax (paid on profits), corporate capital tax (paid on property or capital), consumption-type taxes, as well as benefit-related taxes which are associated with a business’s use of public services.

Another well-know form of taxation in Canada, especially for those who own their home, is property tax. This a tax on tangible property (usually real estate) owned by individuals, businesses, and organizations. Under this type of tax, one is charged an annual sum equal to a certain percentage of the value of his/her property.

Consumption tax is a fourth type of taxation in Canada, and refers to government charges on the exchange of goods and services between individuals, businesses, and organizations. A tax must be paid to the government whenever one party sells a good or service to another party. Some consumption taxes, such as the Goods and Services Tax or provincial retail taxes, are applied to a wide range of items and activities. Other consumption taxes, such as tobacco or liquor taxes, are applied to just to specific goods or services.

HST as a Consumption and Value-Added Sales Tax

The Harmonized Sales Tax (HST) is, as the name suggests, a sales tax. It is a government charge on the exchange of goods and services. It is, however, a specific type of sales tax.

The HST is a consumption tax, meaning that the party purchasing the good or service (the “consumer”) is responsible for paying the tax, as opposed to the “vendor” or “seller.” The vendor simply adds the HST at the point of sale — essentially a fixed percentage of the initial sales cost of the good or service. The vendor is then responsible for collecting the HST and remitting it the government at the end of the tax year.

The HST is also a value-added tax. This is significant in that it overcomes the problem of cascading taxation that can plague other sorts of consumption taxes. The term “cascading taxation” refers situations in which tax is levided on tax. Take, for example, a television. Firstly, the television must be made by a manufacturer, who purchases goods or inputs during the production process, such as raw materials and equipment. Accordingly, the manufacturer must pay a sales tax on these items, which they build into the price. When a wholesaler purchases a television from the manufacturing, they have to pay tax on the transaction. Part of the tax the wholesaler pays will be on the tax paid by the manufacturer in producing the television, and which is built into the price. This occurs again when a retailer purchases the television from the wholesaler.

Value-added taxes, such as the HST, are meant to overcome this problem of cascading taxation through a system of input tax credits. Sellers or vendors of goods and services are provided with tax credits equalling the amount of HST they paid during the course of their routine business transactions. Manufacturers, for example, receive a tax credit for all the Goods and Services Tax they paid when purchasing inputs as part of the manufacturing process. Wholesalers and retailers, similarly, receive tax credits for all GST paid when purchasing their stock. The only group in the chain that does not receive an input tax credit is the final consumer, who purchases the product for consumption rather than using it as input for production or distribution. As a result of this input tax credit system, there is no layering of HST.

A properly designed value-added tax is also designed to treat imports and exports fairly.  The Goods and Services Tax and Harmonized Sales Tax, for example, are not charged on the price of goods (or services) that are exported or sold outside the country, although the vendor may receive an input tax credit for taxes paid. Similarly, the import prices of goods and services sold in Canada are then subject to GST/HST, putting them on a level playing field when compared with domestically produced goods and services. Given that the United States, our largest trading partner, does not have a national sales tax, and that in previous years, at least one third of the value of Canada’s manufactured exports was comprised of imported components, this is a critical factor in preserving the competitiveness of Canadian businesses in international markets.

HST as a Federal-Provincial Sales Tax

An important characteristic of the HST is rooted in the very essence of Canadian federalism. Canada is characterized by two key levels of government: the federal government and the provincial governments. Each level has the authority to charge (or levy) sales tax. At the federal level, the government charges the Goods and Services Tax (GST), while at the provincial level all governments (except the Government of Alberta) charge some form of a provincial sales tax.

For those provinces that opt into the HST, the combined tax represents a voluntary harmonization of a province’s sales tax with the federal tax into a single, federal-provincial sales tax. As of October 2009, three Canadian provinces had harmonized their provincial sales taxes into the HST: Nova Scotia, New Brunswick, and Newfoundland and Labrador. Two more provinces, Ontario and British Columbia, have announced their intention to implement the HST by July 2010.

It is important to note that while the HST is a combined federal and provincial sales tax, it is based in large part on the federal GST. For the most part, the HST follows the same rules as the GST in regard to its application (the range of goods and services on which the tax is charged). Moreover, like the GST, the HST includes a system of input tax credits, intended to prevent the problem of cascading taxation. Finally, the HST is administered predominantly by the Canada Revenue Agency, which is a shared governance agency reporting both to a federal cabinet minister and a Board of Management nominated by federal, provincial and territorial governments.

Unlike the GST, however, the harmonized sales tax includes both a federal and provincial portion. The federal portion is based on the GST, which is currently set at a tax rate of 5 percent. In the participating Atlantic provinces, the provincial portion is set at 8 percent. As such, the total HST charged on goods and services in these provinces is 13 percent. Early indications suggest that Ontario will follow the same basic tax rate for its HST, with an overall 13 percent tax and a 5/8 split. British Columbia, however, has announced that it will seek a smaller provincial tax rate of 7 percent. As such, that province’s HST will total 12 percent, with a 5/7 split between the federal and provincial governments.

History of the Harmonized Sales Tax in Canada

From the MST to the GST to the HST

Federal-Provincial Sales Tax Regimes Prior to 1991

Prior to 1991, sales tax regimes in Canada were characterized by several elements. First, each federal and provincial jurisdiction (except Alberta and the territories) had its own independent form of sales tax. Moreover, these various sales taxes differed substantially in their application and operation depending on the specific priorities of each jurisdiction. Hence, Canada had a fragmented sales tax regime with different systems at the national and various sub-national orders.

Second, federal and provincial sales taxes prior to 1991 were not value-added taxes. At the federal level, for example, the government had been charging a Manufacturer’s Sales Tax (MST) since 1924, a single-stage sales tax generally applied to the manufacturer’s sales price of goods produced in Canada, or to the customs value of goods imported into Canada. Before selling to consumers, parties would pay the tax when they purchased goods produced in Canada, or internationally.

At the federal level, the issue of sales tax reform, particularly in regard to the MST, had been a matter of ongoing concern for many years. At the end of the 1930s, the Royal Commission on Dominion-Provincial Relations recommended eliminating the MST altogether due, in part, to the problem of cascading taxation that resulted. Manufacturers had to pay the MST when purchasing manufactured inputs for their products. The MST would then be applied again when the manufacturer sold its final product to wholesalers or retailers. As a result, the MST was being applied to itself through the different layers of the production process. While the federal government did not eliminate the MST, it did attempt to reform the tax by introducing an extensive system of administrative regulations aimed at reducing the cascading effect.

In 1955, a federal Sales Tax Committee reviewed the issue and recommended major reforms to the MST. Instead of being applied at the manufacturer level, the committee recommended the federal sales tax be charged at the wholesale level, when wholesalers sold the product to retailers or individuals. The committee suggested that this reform would help overcome the problem of cascading taxation, thereby reducing costs for the manufacturing sector — which would be free of the MST’s cumbersome administrative regulations.

In 1966, the Royal Commission on Taxation produced its findings on the issue of sales tax in Canada. The commission’s key recommendation was the idea of implementing a national retail sales tax to replace the existing federal and provincial sales taxes. Under this reform, the sales tax would be applied at the retail level rather than at the manufacturer or wholesale level, and would be paid by individual consumers. Moreover, it would be a national tax — one the provinces would administer and collect, a combined federal and provincial sales tax. It was argued that this national retail tax would simplify the federal-provincial sales tax system, and provide a broader base of taxable items (the retail tax would also include services, not just tangible goods). Nevertheless, it would not overcome the problem of cascading taxation, as the proposed reform did not include a system of input tax credits.

Introduction of the Goods and Services Tax

Following the 1955 and 1966 reports, the federal government undertook its own sales tax reform study. During the 1970s, several government papers endorsed the report of the 1955 Sales Tax Committee and its recommendation to move the federal sales tax to the wholesale level, based in large part on a perceived difficulty in implementing a national retail sales tax in the context of Canadian federalism.

The 1981 federal budget, which introduced a number of proposed tax reforms, actually attempted to implement a wholesale tax. However, as with several other aspects of that budget, sales tax reforms became bogged down in both stakeholder and technical criticisms. As a result, Ottawa created the Federal Sales Tax Review Committee in 1983. The Committee concluded that neither an improved manufacturer’s tax nor a wholesale tax was the solution. Instead, the committee gave the federal government three options to consider: 1) a national retail sales tax, 2) a federal retail sales tax, or 3) a federal value-added tax. The committee pushed for the third option, suggesting the federal government collaborate with the provinces in administering the tax. In 1984, the federal government officially announced it intended to replace the Manufacturer’s Sales Tax with a consumption value-added tax.

A number of factors contributed to the federal government’s decision to replace the MST with a consumption value-added tax. During the late 1970s and early 1980s, the Government of Canada had come under increasing financial pressure and was posting systemic annual deficits. A new consumption value-added tax, applied to a broader range of goods and services than the MST, was seen as a way of increasing the government’s tax base and revenues. In addition, there was a concern that the MST was hurting Canadian economic investment and international competitiveness. This stemmed from the MST’s tendency towards cascading taxation which, in turn, was seen as discouraging investments in physical capital. This concern was heightened significantly with Canada’s 1989 signing of the Canada-United States Free Trade Agreement, which opened Canadian businesses to greater competition with their American counterparts.

In 1987, the federal government released a White Paper in which it proposed substantial reforms in the areas of both sales and income taxes. Moreover, the government proposed to replace both the federal MST and provincial sales taxes with a single “national” value-added tax. There was, however, little support from the provinces for a national integrated sales tax. As such, in 1991, the federal government introduced its own value-added tax to replace the MST — the Goods and Services Tax (GST).

Move to the Harmonized Sales Tax

While the idea of a combined federal-provincial sales tax had initially been rebuffed, the federal government continued to negotiate with the provinces on this matter.

In 1991, the federal government and the Government of Quebec entered into an agreement in which it was determined that the province would be responsible for administering and collecting the new GST. In addition, Quebec introduced its own value-added tax, the Quebec Sales Tax (QST), which over time has taken on many of the same elements of the GST. While this agreement with Quebec did not result in a formally combined sales tax, it does have many of the same qualities as the HST, such as a similar tax base (the range of goods and services the two taxes are applied to) and a single level of government collecting the taxes (in this case, the Government of Quebec).

In 1996, the federal government negotiated further agreements with the provinces of Newfoundland and Labrador, New Brunswick, and Nova Scotia. In these cases, the three provinces agreed to bring their provincial sales taxes into line with the GST to form the Harmonized Sales Tax (HST). This arrangement also permitted administration and collection of the new combined value-added sales tax by the federal government, which would forward to each respective province its portion of HST revenues. In exchange for harmonizing their provincial sales taxes, the federal government agreed to the provinces a one-time payment of approximately $1 billion.

The federal government has continued its attempts to persuade other provinces to join the HST scheme. In his 2007 Budget, for example, federal Finance Minister Jim Flaherty offered an incentive to provinces to harmonize their sales taxes with the federal GST by offering to protect them from revenue losses during the transition to the new tax.  This initiative was part of a broader federal plan to reduce overall marginal effective corporate income tax rates to the lowest in the G-7 group of industrial countries by 2012.

It was not until 2009, however, when other provinces moved towards the HST. In that year, the provinces of Ontario and British Columbia announced they would reform their provincial sales taxes into the HST, effective July 2010. As in the case of the three Atlantic provinces, Ontario and British Columbia HSTs will be administered and collected by the federal government. Moreover, to facilitate the transition to the HST model, the two provinces were granted one-time payments from the federal government, with Ontario set to receive $4.3 billion and British Columbia, $1.6 billion.

A number of reasons may have prompted Ontario and British Columbia to harmonize their sales taxes. The two provinces seemed to have accepted arguments in favour of the HST, which emphasize its economic benefits. The Government of British Columbia, for example, has asserted that the move to a provincial value-added tax, harmonized with the federal GST, will result in approximately $2 billion in savings for employers, which will help create jobs and attract investment (Government of British Columbia, 2009). In addition, both provincial governments gain financially from the reform. Not only do they receive large one-time federal payments, but they will incur savings because the federal government will be taking over the tax’s administration and collection.

As of October 2009, no other province has announced intentions to reform its sales tax into the HST. Unless this should change, by July 2010, the HST will be applied in five provinces: Newfoundland and Labrador, New Brunswick, Nova Scotia, Ontario, and British Columbia. One province, Quebec, has its own value-added tax and agreement to collect the GST, while another, Alberta, has no provincial sales tax at all. The remaining provinces, Saskatchewan, Manitoba, and Prince Edward Island, will continue to charge their own provincial sales tax separate from the federal GST.

Administration of the Harmonized Sales Tax in Canada

Federal and provincial participation in the HST’s administration

Federal Administration of the HST

As discussed earlier, under federal-provincial agreements, the federal government is responsible for administering the Harmonized Sales Tax (HST). Two federal organizations are particularly important in this context: the Department of Finance and the Canada Revenue Agency (CRA). The Department of Finance makes federal tax policy. Tax collection, interpretation, enforcement and client service / education are carried out by the CRA.

While the HST is made up of federal and provincial value-added taxes, both are collected by the federal government which, in turn, forwards the provincial portion of the tax to the respective provincial government (see below for more on the allocation of HST revenue). More specifically, collection activities are performed by the CRA, which is responsible for the administration of federal taxes in general. Businesses and service providers in participating provinces are required to register with CRA for the purpose of the HST, and remit the tax to the federal agency on annual or semi-annual basis. Additionally, the CRA is responsible for administering the HST’s system of rebates and input tax credits.

Changes to federal tax law – what is subject to taxation according to the specific wording of the Income or Excise Tax Acts – is the responsibility of the federal Department of Finance.  The CRA then interprets and administers the law, issuing interpretation bulletins (general) and advance rulings (taxpayer specific) that are subject to judicial review if a particular ruling is disputed by a taxpayer directly affected by that ruling.  The two functions are separate – although the Department and Agency do communicate privately on a wide range of issues.

The CRA is further responsible for enforcing HST law, particularly in regard to ensuring that businesses and service providers are properly collecting, reporting, and remitting the HST. In this context, the CRA has the authority to investigate parties to ensure they are meeting their legal obligations, as well as imposing financial penalties for any violation of the law. The CRA also has a system of tribunals in which businesses and individuals may appeal decisions regarding their tax assessment and penalties. Initial tribunal rulings may be appealed to the Tax Court of Canada.

Another key function performed by the federal government centres on service and education regarding the HST. The CRA acts as the point of contact for businesses and individuals seeking information about the HST generally, or their particular obligations and rights specifically. Further, the CRA provides a wide range of publications, policy statements, notices, information sheets, and guides which are meant to assist taxpayers in understanding their obligations under HST law, and the specific procedures they must follow in remitting the tax or claiming rebates.

Provincial Participation in HST Administration

While the federal government is responsible for much of the HST’s administration, participating provinces also play an important role. In discussing this issue, it’s important to note that provincial participation may differ between the three Atlantic provinces and also between Ontario and British Columbia. Moreover, as the latter two jurisdictions have only signed memoranda of understanding with the federal government at this time, rather than a formal HST agreement, their precise participation and demands in administration of the tax is not yet completely clear.

One of the most important mechanisms for provincial participation in the operation of the HST is through their original agreements with the federal government. Before a province harmonizes its provincial sales tax with the GST, it negotiates a formal agreement with the federal government, referred to as a Comprehensive Integrated Tax-Coordination Agreement. Such agreements set out the basic framework by which the HST will operate in a particular province, including its tax base, rate, and payment of revenues. In their agreements, provinces will often negotiate unique provisions for the HST which only apply in their jurisdiction. This is significant in that it means the HST is not completely uniform across all participating provinces. For example, different provinces typically have different HST rebate and credit programs reflecting their own particular political or economic priorities.

For a detailed overview of how the HST is applied in different provincial jurisdictions:

Another important mechanism of provincial participation is the Tax Policy Review Committee established by the federal government and the three participating Atlantic provinces. The committee’s purpose is to review issues regarding the HST’s legislation and administration, including the tax base, tax rates, tax structure, and management of the allocation of revenues. The committee is chaired by the Government of Canada, with provincial representation, and provides a report to participating governments every five years.

In addition, this committee appoints an inter-governmental Revenue Allocation Sub-Committee (RASC), which includes federal and provincial officials and is responsible for allocating revenues between the federal government and participating provinces. Twice a year the sub-committee meets to determine the total HST revenue pool and how the monies are to be divided among the various governments. In so doing, the sub-committee follows a particular formula which has been agreed upon by all governments (see below for more information). In their memoranda of understanding, the Ontario and British Columbia governments have committed to joining the revenue allocation framework previously established with the three Atlantic provinces.

Under the HST administrative regime, it is possible for participating provinces to alter the tax base and rate of their HST portions. For the three Atlantic provinces, any change to the tax base must be made in consultation with the Tax Policy Review Committee. Moreover, under their formal agreements with the federal government, the Atlantic provinces committed to maintaining a common HST rate, which they may set independently from the federal government. All three provinces must agree before the provincial portion of the HST may be lowered. However, only two of the three provinces need to agree in order to raise the provincial portion of the HST (with the third being obliged to follow suit). As Ontario and British Columbia have yet to sign formal agreements with the federal government, it is not yet precisely clear how they will be integrated into this process, though it’s important to note that British Columbia has announced it intends to pursue a lower provincial tax rate under its HST (7 percent rather than the 8 percent of other provinces).

In addition, under their agreements, the three Atlantic provinces enjoy some control over federal changes to the HST. If, for example, the Government of Canada expands the tax base (the range of goods and services open to the HST), a participating province may object in writing. This objection, in turn, entitles the provincial government to make a request for a relieving measure by the federal government, such as a credit or rebate applicable only in that province.

Allocation of HST Revenues

A critical component of the HST’s administration is the allocation of tax revenues between participating governments. As noted above, the HST includes both federal and provincial sales tax components. The federal government collects both portions of the tax and then forwards to the provinces their respective amounts.

Under the HST system, however, there is no tracking of the revenue collected in any particular province. Instead, under the agreements between the three Atlantic provinces and the federal government, allocation of revenues is calculated through a complex formula based on estimated national revenues and provincial tax bases. In simple terms, the process starts by first estimating the total amount of GST and HST the federal government will collect nationally in a given year. This total amount is referred to as the “revenue pool,” and is estimated by the federal Department of Finance using data from Statistics Canada and the Canada Revenue Agency.

Each participating province is then entitled to a share of this estimated revenue pool, according to their particular tax base and specific system of HST rebates and credits. A province’s tax base, for the purpose of the HST, is determined by taking into account five categories of economic activity: consumer expenditures, residential construction, financial institutions, public sector bodies, and taxable supplies other than those included in the previous categories. As a result, those provinces with larger economies will be entitled to a larger share of the revenue pool than smaller provinces. Moreover, provinces that institute a higher level of HST credits and rebates will see a decrease in their share of revenues.

Using these formulas and estimated numbers, the federal government then provides regular payments to participating provinces. Annual adjustments are also made to ensure the amount paid out by the federal government is consistent with actual taxes levied during the year. In regard to the Atlantic provinces, the federal government makes monthly payments based on each province’s estimated annual share of the revenue pool. Under their memoranda of understanding, Ontario and British Columbia have requested daily payments.

Debates Concerning the Harmonized Sales Tax

Provincial sovereignty and impact on consumers and taxpayers

Provincial Sovereignty and the HST

One important political issue surrounding the Harmonized Sales Tax (HST) is the issue of limited provincial sovereignty in the area of taxation. As discussed above, both the federal and provincial levels of government are constitutionally entitled to implement their own sales taxes. Moreover, decisions regarding the structure of a sales tax can be an important policy tool for governments. The level of the tax rate, for example, can have significant implications for government revenues and overall finances. A government can manipulate the range of goods and services applicable to the tax, or the tax obligations of certain groups and organizations, with the goal of promoting specific social or economic priorities.

With the HST, however, participating provinces relinquish some of their control over sales tax policy. As discussed above, the HST model is based on the federal GST and the Excise Tax Act. Moreover, key federal entities, such as the Department of Finance and the Canada Revenue Agency, are responsible for interpreting and applying HST law.

While the participating provinces are abdicating some control over sales tax policy, it is important to note a number of factors. The federal-provincial HST agreements do not involve any transfer of constitutional jurisdiction over tax policy. As such, the provinces are free to opt-out of the HST at any time and re-impose their own provincial sales tax.  The provinces also have the ability to structure the application of the HST in their own jurisdictions. This includes setting the tax base and rates through their initial formal agreements with the federal government, and making alterations afterwards. The fact that British Columbia intends to impose a different tax rate to a tax base substantially different from that negotiated by Ontario indicates that the provinces may not even be required to maintain a uniform HST rate across the country.

The fact is that federal-provincial arrangements on taxation matters are not new. The federal government, for example, already collects personal income taxes for all provinces except Quebec, in addition to collecting corporate income taxes for most provinces. In addition, government tax rates are often coordinated through federal-provincial tax agreements, where each jurisdiction’s level of taxation is negotiated in order to ensure that government, as a whole, does not overtax individuals and businesses. Nevertheless, the move to an HST does represent a further ‘entanglement’ of a province with the federal government and its provincial counterparts in the public policy field of taxation. For those that advocate provincial autonomy, this is an issue of concern.

HST’s Impact on Consumers and Taxpayers

Another political issue centres on the HST’s impact on consumers and taxpayers. Critics of the HST often argue that it represents a tax ‘grab,’ which will result in higher levels of taxation for individuals and higher prices for consumer goods. The opposition New Democratic Party in British Columbia, for example, has made stopping implementation of the HST a major plank of its attack on the BC Liberal government. In so doing, the BC NDP has suggested the new tax would mean an extra $4 billion in revenue over four years for the government (BC NDP, August 4, 2009). Moreover, the new tax will be highly detrimental to key segments of society. According to the NDP, middle- and lower-income families will see their real income fall with the increase in consumer prices and the shift of the tax burden from businesses to consumers (BC NDP, August 12, 2009).

Advocates of the HST, by contrast, reject these arguments. The Government of British Columbia, for example, suggested that the new tax would represent tax savings for residents, eliminating $1.9 billion in embedded taxes for goods and services that occurred under the previous provincial sales tax system (Government of British Columbia, 2009). In addition, as the HST will be administered by the federal government, the BC government contends that its taxpayers will save $300 million per year (the implicit suggestion being that this reduction in costs will somehow be passed along by the government to taxpayers). In the case of British Columbia, the government has also proposed to provide low-income families and seniors with an HST annual credit of up to $230 (Government of British Columbia, November 2009).

Following the British Columbia and Ontario governments respective announcements to move to a Harmonized Sales Tax, TD Economics released a report examining the impacts of the new tax. The report concluded that the move to the HST would reduce the cost of doing business in the two provinces by $6.9 billion annually in taxes paid. Moreover, it concluded that the majority of the cost savings should be passed on to consumers in the form of lower prices, concluding that consumers should witness just under a one-percent drop in pre-tax prices for goods and services. Nevertheless, the report noted that the HST will shift tax burden from businesses to consumers, who will pay the flat sales tax on a broader array of goods and services. As such, the effective tax rate on consumption will increase by 1.5 percent, with the overall price level for goods and services increasing by 0.7 percent in both provinces.

The TD report is significant in that it indicates that the HST will have different impacts on different sorts of groups. With the input tax credits, the HST will lower costs for businesses. This, in turn, should make them more competitive, with a possible consequence being growth in employment and wages. This is an important argument put forth by federal and provincial governments in support of the HST. Nevertheless, by shifting the tax burden and rising retail prices, consumers will be negatively impacted. For consumers with higher incomes, the increase in prices may only be felt marginally; for low-income consumers, however, the rise in prices may have greater consequences, partly offset by higher sales tax credits for lower income taxpayers.

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