By Ray Rivers
November 2nd, 2024
BURLINGTON, ON
Pierre Poilievre speaking in the House of Commons.
Federal opposition leader Pierre Poilievre has turned his tax-cutting guns to another tax. The GST owes its origins to another conservative leader, former PM Brian Mulroney, who introduced this hated tax way back in 1991. And the public response was to decimate the once mighty Progressive Conservative Party, taking it from a strong majority to two lonely seats in the House of Commons.
New homes are currently taxed at the full HST rate of 13% in Ontario. Poilievre’s proposal would lift the GST portion off homes worth less than a million dollars. That would mean a potential saving of as much as $50,000 for the new home buyer. It’s a novel idea, but one that the current government has dismissed.
They’ll tell you that the housing market, like most markets, is subject to the laws of demand and supply. Currently there is already excess demand for homes and cutting the sales tax would just add to that excess demand. In addition, because it’s essentially a sellers’ market today, some of that $50,000 would likely end up as additional profit in the pockets of the home builders.
Getting rid of the HST is an idea worth discussing, though. All taxes and subsidies distort market behaviour. But broad-based sales taxes like the HST disincentivize consumption which is, after all, what drives an economy. More importantly, broad sales taxes are regressive since they impact those with lower incomes more than the wealthy. That is why the government offers GST rebates to low income earners.
Increasing taxes on spirits could be a revenue producer.
There are other ways for government to raise revenue. We could reintroduce inheritance taxes and/or start taxing lottery and gambling winnings and other windfalls. We could make all capital gains fully taxable as was the original intent. It is just another source of income, after all. We could increase the progressivity of income tax for a more equitable society. And we could apply even more taxes on those goods or services that can harm us; like tobacco, alcohol and fossil fuels.
If Ontario also removes its PST, the potential home buyer saving could be as high as $130,000. But even if the homeowner could save money on a new home, that doesn’t mean one would be available for them. The real problem is too few houses for too many people and too many people for too few houses.
To help with the supply side the federal government has started incentivizing municipalities to build more housing infrastructure and open up more land for (re)development – by throwing money at it. They haven’t been this involved in actual home building since Mr. Mulroney ended federal involvement when he was still PM.
The feds are involved because they are also a huge part of the problem. To get the economy moving again in the wake of the pandemic, business leaders and some provincial leaders, including Mr. Ford, pushed the federal government into opening the nation’s flood gates to immigration. And the feds listened to them.
In response, Canada processed a record of over 5 million applications for permanent residency in 2022 with about 10% of those, almost 500,000, given the right to live and work here. And that doesn’t include the temporary migrants. In total over a million new entrants came here, each of them competing for today’s housing.
Prime Minister Justin Trudeau welcoming immigrants to Canada.
As anticipated, these new arrivals spurred economic activity and Canada came out of the post pandemic slump faster than many other G7 nations. But the upshot is that our housing sector was not ready for the influx. Realizing the error of their ways, the feds have now decided to significantly lower immigration targets over the next few years. And that has woken up Mr. Poilievre who, in response, has suggested linking the rate of immigration directly to the rate of new home construction.
It is difficult to see how Mr. Poilievre’s GST cut would solve Canada’s short term housing supply issue. But his plan to pay for it by slashing the new federal programs which have shown some promise in adding to today’s housing stock is just the wrong thing to do. On the other hand, benchmarking immigration rates to some tangible target, like new housing starts, has to be an improvement over past practices. The way I see it anyway.
Ray Rivers, a Gazette Contributing Editor, writes regularly applying his more than 25 years as a federal bureaucrat to his thinking. Rivers was once a candidate for provincial office in Burlington. He was the founder of the Burlington citizen committee on sustainability at a time when climate warming was a hotly debated subject. Ray has a post graduate degree in economics that he earned at the University of Ottawa. Tweet @rayzrivers
Background links:
Cutting GST – More GST cut – Ford Want More Immigration – Canada Immigration –
Housing Crisis – Immigration Targets – Harper Cuts GST –
“As anticipated, these new arrivals spurred economic activity and Canada came out of the post pandemic slump faster than many other G7 nations.” This is very misleading and sounds like it is coming directly from Trudeau. Look at the GDP per capita data. GDP per capital has shrunk 7 out of the last 8 quarters!!! This means we are all worse off not better off.
Dear Perry – I didn’t forget – the MST was problematic too.
Mr. Rivers seems to forget that the GST was not a new invention – it was originally a replacement for the much higher manufacturer/producer tax that was applied at source to the product cost and hidden from the buyer. This meant that a much lower but visible tax rate was applied to the consumer price and presumably fairer. Of course decades of political dipsy-doodling has made today’s GST/HST unmoored from any historical rationales.