New tax to help Ontario close prosperity gap: report
The Financial Post
By Eric Lam
The prosperity gap between Ontario and its peers in Canada and south of the border widened in the past year, but the controversial harmonized sales tax set to be introduced by the McGuinty government next June could rapidly improve the province’s standing, a new report says.
The eighth-annual report on Ontario’s competitiveness from the Institute for Competitiveness and Prosperity, released today, shows the province posted a gross domestic product per capita of $45,500 in 2008, $7,000 less than the median of $52,500 among a group of 14 states and two provinces with a population of at least six million. This is worse than the $6,600 gap last year, and the widest since the $7,200 in 2000.
While Ontario was once $200 (in 2008 dollars) above the median in 1981, the province has consistently ranked 15th on the list in the past 16 years, ahead of only Quebec.
“It comes down to productivity,” Jim Milway, executive director with the institute, said. “It’s not about working faster, but working better.”
Of the $7,000 difference between Ontario and the median, $5,800 can be attributed to a lack of productivity. The rest comes from a lack of labour intensity. “We don’t work as many hours as the Americans…. We have good industries, but we just don’t compete as effectively,” Mr. Milway said.
The numbers skew even more when Ontario is compared with New York State, ground zero of the financial
crisis, which led the list with a per capita GDP of $70,200.
“Much of the popular press has concluded that the recession has been much more severe in the United States than in Canada,” the report said. “This is true for Canada, but not for Ontario.”
However, the new HST is expected to help improve Ontario’s competitiveness because it will reduce costs for overtaxed businesses. The report also cites research that estimates the new tax will increase capital investment by $47-billion while creating 591,000 net new jobs. “I’m optimistic the tax changes will close that gap,” Mr. Milway said. “It could get us up to 14 or 13.”
Closing the prosperity gap is crucial not just for the health of the province, but for consumers as well. If the $7,000 deficit was erased right now, every household would get $10,200 in after-tax disposable income, the report says. It would also generate $31.7-billion in tax revenue for the three levels of government in the province, the report said.
Mr. Milway argues that consumers will ultimately see lower costs, as the Atlantic provinces did when they switched to the HST in 1997. But it will depend on businesses translating their provincial tax savings to lower prices instead of pocketing the difference.
“I know when I speak to audiences they don’t believe me,” he said. “It is a tough sell.”
The institute also wants to see increased international trade and more investment into post-secondary education and out of health care.
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