On July 1st Ontario’s version of the Harmonized Sales Tax (HST) will come into effect adding an additional 8% tax hit to products and services. Like most Ontario residents I’m not excited about this additional cost that will be placed on simple items such as gasoline, utilities and services I use. As a respectable taxpayer I take it in stride and wonder how the effect will really translate to the economy, investing and my own pocket.
I understand the “inefficiencies” that the government quotes knowing that these politicians really don’t understand what they’re talking about by quoting research that suggests a specific number of jobs being created by the new HST. If we asked them where the jobs will be created and they avoid, deflect and change the subject because they really don’t know. It sounds all good that businesses will save money and pass along the savings but they won’t really and I think most consumers and investors understand this.
The mutual fund industry is a perfect example; any savings in efficiency won’t be passed along to the individual investor. Likewise consumers won’t see a drop in the utilities rates, prices at the pump or for services from lawyers, contractors and other trade work. Businesses might initially reduce prices to attract business but tracking the savings being passed along will be difficult if not futile because of the reluctance of businesses to save the consumer some money.
I freely admit that the additional cost that we’ll experience in our monthly spending will have a direct result on how much I save & spend. The effect will be measureable (about 4.5% of my monthly budget) and enough that it will affects our savings rate accordingly. We still save about 15% of our income at present but that’s down from the nearly 20% average over the past 12 months.
Eventually consumers and businesses will adjust and the government will benefit from the additional revenue but the effect on an economy, housing market and employment likely will be measured over the next 12 months.
Consumers will continue to spend on discretionary items but I have to wonder how much the savings rate of the general family will be affected since savings rates have recently been at very low historical levels. The absence of any incentive for Ontario families to save and instead receive cheques in the mail (our own money) tells me the government really dropped the ball on an opportunity to introduce some meaningful program(s) to help families adjust to the current change in their financial landscape.