Although Christmas is less then two months from now, if the New Democratic Party (NDP) had their way, Ontarians would have started their holidays a month ago.With Ontario’s economy in a slump and the events of Sept. 11 weakening it further, political parties have put their minds into overdrive, in an attempt to find way to turn the economy around. For their part, the Conservatives continue to stand by their opinion that cuts to corporate and personal income tax are the answer. Although not often heard endorsing tax cuts, the NDP says that a tax cut of a different kind is what is needed to jump-start the economy.
In a news release issued by NDP leader Howard Hampton, he suggests that Ontario go on a “sales tax holiday.” The plan, which was originally thought of in late September, would see Ontario’s eight per cent provincial sales tax (PST) eliminated for the next three months on winter clothing and school supplies. It also calls for the PST to be reduced to five per cent on all other items.
According to Gil Hardy, manager of media relations for Howard Hampton and the NDP caucus, there would be no exceptions. It would be, as Hampton called it “a province-wide sale.”
“Our primary goal was to encourage and give a boost to the economy, tied in with a desire to help those with less cash then most of us,” said Hardy.
He continued by explaining why the NDP’s plan would be more effective than the Conservatives plan to cut personal and corporate income tax.
“If we reduce the PST on a fridge, it encourages people to spend, and also helps those folks to buy the necessities. But if you cut corporate income tax, it won’t encourage people to buy a fridge.”
“One of the arguments when you are looking at cutting … sales taxes is that you’re spurring the economy right away,” said Allister Young, an adjunct professor in Brock’s department of accounting and finance, who specializes in taxation. “You are kind of ignoring what might happen in the future. If the economy gets worse, are you going to do this again?”
If the NDP were in power, they would have implemented the “sales tax holiday” for the months of October, November and December. This would help merchants during the busy fall and Christmas season, which usually accounts for a substantial portion of the yearly sales for many retail businesses.
This idea is not without precedent. Many U.S. states have also experimented and in many cases implemented yearly sales tax holidays. There are, however, differences between what has been tried in the U.S. and what the NDP is proposing for Ontario. The most glaring difference being that the “holiday” in most states is only a week long, not three months as the NDP have proposed.
In Connecticut for example, the holiday was held for one week in August and limited the sale to clothing and footwear valued at under $300. What it covered by the sale, as well as the maximum value of the goods, varies from state to state.
According to Young, “if you’re cutting sales tax on specific items, the opponents of that would say that your are trying to direct peoples purchasing into these types of items, where as the proponents of income tax would say were just giving you the deduction itself and were going to let you spend it any way you want to.”
Young does point out that there are some benefits in a sales tax reduction. Young says it takes six months to a year for income tax cuts to filter their way through the system. Another problem with income tax cuts is that people don’t have to invest the money they receive. If people invest the money from an income tax cut, then the economic benefit is negated.