Wednesday, October 5, 2011

Ontario's $16 Billion Deficit, Would Raising HST Help?

With the election one day away and all parties not really saying a lot on how to get rid of the estimated $16 billion deficit Ontario (for the current fiscal year), taxpayers don't really have a good idea how big it is. As an exercise, I thought I would look at how high the HST would have to be raised to get an extra $16 billion.

Looking at the GST wiki, there's an estimate that the federal government lost $6 billion in revenue for lowering the GST by 2%, so that's approximately $3 billion per percentage point for the entire country (those were 2008 numbers, but we will work with them). Given that Ontario's percentage of the population is 38.1% (13.2 million out of 34.6 million), we will make another estimate that a percentage of HST is worth around $1.14 billion (some things don't have provincial tax on them, do Ontario residient pay more than the average Canadian for GST?). So to close the $16 billion deficit would require raising the HST by approximately 14%, taking the rate to an astronomical 27% from the current 13%. That's nasty and let's be honest, raising the HST to 27% wouldn't actually result in that much more revenue. The economy would tank, people would buy goods outside Ontario, black markets would take off, etc. Raising the HST to 15% to take back the 2% the feds lowered the GST would help, but wouldn't come close to getting rid of the deficit.

That's how big a problem the Ontario deficit is. Raising taxes to cover it won't be easy at all. Unless people enjoy paying sales tax of 27%.

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