Businesses Are Passing On Savings To Consumers

StarBuzz Weekly, Toronto-March 17, 2011New Study Confirms Tax Changes Benefit Ontario Businesses And Families. A new report confirms that Ontario businesses are already passing on sales tax savings to Ontarians - at a much faster pace than estimated. The report by University of Toronto professor Michael Smart, Canada's leading economic expert on the impacts of sales tax harmonization, looks at the effect of Ontario's tax changes during the first six months after the HST came into effect.

Smart finds that about two-thirds of the new input tax credits given to businesses have been passed on to Ontarians in the form of lower consumer prices. Further savings are expected to be passed on to consumers over time. In its own analysis, the government assumed

20 per cent of business savings would be passed on to consumers in the first year. To help Ontarians with the transition to the HST, the government provided one-time payments totaling up to $1000 per family and up to $300 per individual. This report confirms that the average annual net savings for Ontarians in the first year are even higher than earlier government projections. Professor Smart finds that the increase in consumer prices due to the HST declined from 0.9 per cent in July to 0.6 per cent by December 2010. This reduction in consumer prices is in addition to the tax cut for 93 per cent of Ontario income tax payers and other credits and benefits that are making life a little easier for families. Tax reform is just one part of the Open Ontario plan to build a stronger economy that is creating new, good jobs while protecting services like health care and education that Ontarians value most.

QUOTES

"Modernizing Ontario's tax system has made our province more competitive and is strengthening business investment. This will lead to more job creation and higher incomes for Ontarians while protecting services that matter most to Ontarians."

– Dwight Duncan

Minister of Finance

"Michael Smart's report confirms what we have said all along: that business would pass savings on to Ontario consumers. In fact, it is happening faster than we estimated."

– Sophia Aggelonitis

Minister of Revenue

QUICK FACTS

·

When the HST was introduced, businesses began receiving input tax credits, providing a cost saving that can be passed on to consumers.

·

Tax changes in Ontario are making businesses more competitive by cutting the marginal effective tax rate on new business investment in half.

·

2010 third quarter growth was led by business investment and continued gains in consumer spending. Business spending on machinery and equipment increased more than 10 per cent reflecting the positive impact of the HST and tax incentives.