Canada - Hampton calls for increase in PST

The Ontario government should help municipalities by moving into the tax space created by the coming reduction of the federal goods and services tax, according to provincial NDP Leader Howard Hampton.

In a letter to Premier Dalton McGuinty, Mr. Hampton proposed yesterday that Ontario raise the provincial sales tax by one point to 9 per cent, and turn the $2-billion that would raise over to municipalities.

Since Ottawa is lowering the GST one percentage point to 5 per cent on Jan. 1, "no one will be paying more taxes - and Ontario municipalities will be $2-billion better off," Mr. Hampton's letter says.

His letter throws back in the provincial government's face the position that Mr. McGuinty and then-finance-minister Greg Sorbara took during the provincial election campaign.

Then, the provincial Liberals signed on, loudly and visibly, as supporters of Mayor David Miller's campaign to get Ottawa to give municipalities one of the six percentage points that it charges in GST.

Just before the election, Mr. McGuinty wrote Prime Minister Stephen Harper to ask that Ottawa do what Mr. Miller, with the support of the Federation of Canadian Municipalities, has been asking: Give municipalities GST revenue.

In Mr. Hampton's letter to the Premier, the NDP Leader quotes Mr. McGuinty's impassioned argument to the Prime Minister - "our municipalities face tremendous pressures, and that, in turn, is placing pressure on property taxpayers" - with much approval.

But since the Prime Minister did not take the Premier's advice, it "created an opportunity for the McGuinty government to follow your [own] advice," Mr. Hampton observes.

Harry Kitchen, a municipal finance expert who recently retired from Trent University, said in an interview that there are a number of problems with Mr. Hampton's idea.

The PST is not imposed on the same tax base as the GST - most services escape the PST. Consequently, one percentage point of PST will not raise as much as one point of GST, he said.

More broadly, he said, "I don't think there is a strong argument I can see for handing [tax] points to the municipalities."

Rather than cash, the province should give municipalities the power to impose a sales tax if they wish, but "I don't think municipal politicians want that," Dr. Kitchen said.