The true cost of the Harmonized Sales Tax (HST) for an average Ontario household

Last week’s provincial budget introduced plans to harmonize the Provincial Sales Tax (PST) with the Good and Services Tax (GST) to create the Harmonized Sales Tax (HST).  The budget also introduced a one-time $1000 payment to offset the extra costs that will be incurred as well as a  reduction in the lowest tax bracket.  The lowest tax bracket would now be 5.05% as opposed to 6.05% for income up to $36,848, which is to be adjusted for inflation on a yearly basis.

How much will my family save?  How much more will pay for things like gas, heat and telephone?  Since I use Quicken to keep track of where our money goes its easy for me to do the calculations.  We are are an average family, I think, although some people will say that we are anything but.  I’m not looking for an exact amount of extra cost or savings, just a rough estimate so that when Dalton McGuinty and his gang start talking about how much the average Ontarian will pay or save I will know better.

I used my Quicken data for the first quarter of this year, Jan 1 2009 to Mar 31 2009, and multiplied the numbers by 4.  This should be accurate to within a few dollars since I use equal billing for gas, have central air in the summer and our driving patterns do not change much season to season.

$1032 see below for breakdown

That’s how much more this will cost me in tax for the items I calculated.  I did not include groceries per say, I just added 3% to our grocery bill since looking up what’s taxable and what is exempt is time consuming, but its safe to assume that any extra cost such as transportation will be passed on to us, the consumer.  I did not include things like clothes (already pay tax), medical/dental (tax exempt) or admissions to hockey games, concerts and shows since that varies quite a bit based on the time of year.  This is strictly housing, transportation, insurance, phone and the likes.

Note: I did include my natural gas bill event though Dwight Duncan stated that heating fuel would be exempt.  Just because Dalton McGuinty government says something doesn’t mean it will happen, and we also know that hydro rates are going up, how much is the question.  For these reasons I feel that the number I came up with is reasonable, if not a bit low.

Now that I know how much more it will cost me the $1000 one-time payment makes sense.  It will relieve some of the pressure Dalton and the Liberals will feel during an election year.  Remember that the third and last check is to be mailed a few months before we go to the polls.  So we get a $1000 in the mail which turns into $700 since its taxable same as the Conservatives’ $100 a month child benefit, but what about the lower tax rate for the bottom bracket?  That’s easy to figure out

$36,848  at 6.05%   = $2229.30

$36,848 at 5.05 = $1860.82

a difference of $368.48
more in my pocket, actually, my wife’s pocket

I’m paying $1032 more per year (conservative estimate) and will save $368,48 in income tax.  That $663.52 that must come out of my pocket, which will be close to the after-tax amount from the $1000 one-time transition payment.  Well done Dalton!

So, in the first year of the Harmonized Sales Tax (HST) coming to Ontario my family will be moderately affected due to the  $1000 payment, even though it is taxable, and the income tax cut for the lowest bracket.  This assumes the province doesn’t decide the increase every other fee we pay such as car registration, health tax premium, driver’s license, etc…  There are thousands of ways they can recapture the revenue they are claiming to lose.

In the following years, 2011 and beyond, the Harmonized Sales Tax (HST) will take a significant amount of my family’s disposable income.  Now factor in the guaranteed electricity rate hikes from the current 6.5 cents kw/h to something along the line of 10 to 11 cents a kw/h (still cheap conpared to Europe)  and your electricity bill just went up 30 percent assuming the delivery charges don’t change much.   All of it taxable under the HST.

This Harmonized Sales Tax (HST) will make us all look back at the $900 Health Tax Premium as the good old days.  I wonder how Dalton McGuinty and Dwight Duncan figure that less disposable income will help Ontario businesses.

Here’s the breakdown of my household, this is a conservative estimate.  I rounded down all number and excluded some one-time items as I want the numbers to be as truthful as possible for a baseline.