On taxing considerations

As promised in my earlier post on the HST, let's take a closer look at how a harmonized tax would actually affect the balance between individuals and businesses - and why the claim of long-term benefits for consumers looks to be highly dubious.

To start with, keep in mind that even under the current system, there's an inherent preference for purchases by business rather than individuals based on the GST reimbursement system.

After all, there's no lack of goods which will have applications both for individuals and businesses. Whether it's furniture and electronics which are commonly found in both business and personal settings, or simply staple goods which end up getting used both at home and in work settings, there's obvious overlap between the basket of goods which may be useful for a business and those typically purchased by individuals.

And as matters stand even in the absence of harmonization, there's already an artificial preference toward business purchasers. To the extent a good is subject to the GST, individuals face an extra 5% charge on the price which isn't borne by businesses competing to purchase the same good. (But of course market distortions in favour of business aren't distortions at all as far as some are concerned.)

Presumably, that set of incentives isn't entirely without effect on the behaviour of all parties. While retailers are forced to keep in mind the impact of a sales tax on individuals, they can also try to avoid that issue by marketing themselves toward business customers whose purchases are comparatively subsidized by the GST rebate program. And there's an incentive for consumers to find some way to label purchases as occurring through a business in order to avoid the GST.

What harmonization then does is to more than double these impacts. And the lowered cost for business is no less a factor than the increased prices for individuals.

Once a good gets included in the harmonized system, the difference between the cost of purchasing by a business and the comparative cost for an individual will rise into double digits. And no vendor paying the slightest bit of attention can avoid noticing both the greater ability of business to pay higher base prices, and the relative incentive to market to businesses rather than individuals.

Likewise, the incentive to push purchases through a business structure as a coupon for 12-13% OFF ABSOLUTELY EVERYTHING!!!! can only become far more significant. Which would figure to lead to plenty of busy work setting up shell companies, while creating no real value for anybody.

So harmonization doesn't just increase direct costs for consumers - though that's obviously an important reason for concern as well. Equally strikingly, though, it also creates a commercial environment designed to further prioritize the interests of businesses ahead of the needs of individuals. And there's plenty of reason to question whether that's a redistribution of wealth which people are eager to see - particularly when the federal government is having to pay off provinces to do it.