Paul Vieira, Financial Post November 19, 2009

OTTAWA — Newfoundlander Lorne Janes can’t figure out what all the fuss is about in Ontario and British Columbia regarding the introduction of a harmonized sales tax.

The owner of St. John’s-based Continental Marble of Canada said the introduction of the HST in his province in 1997 alleviated plenty of headaches dealing with “convoluted” tax rules — such as figuring out whether masking tape was tax exempt to filling out myriad forms to get cash back. With harmonization, he said he was able to move back-office staff to the production floor, and generate revenue as opposed to paperwork.

In addition, the harmonized tax meant Mr. Janes no longer had to pay tax on inputs ranging from machinery that cut pieces of marble and granite, to buffing cloths to give finished countertops a nice shine.

The money saved helped Mr. Janes lower the price on his products to help him compete with low-cost Asian imports.

He was also able to expand Continental Marble’s foreign reach, as sales for exports are HST-exempt. Previously, they weren’t, and his firm was forced to file documents with Ottawa to get the money back — something he often didn’t bother with because of the time involved.

“It is one less irritant that I don’t have to deal with,” Mr. Janes says. “Instead I can focus more on being competitive and maintaining jobs.”

It is estimated that companies in Ontario and B.C. stand to save nearly $7-billion a year in the cost of doing business once the HST is introduced in July 2010, economists at Toronto-Dominion Bank say. That money, business leaders and economists argue, will be poured back into the economy, through lower prices for consumers and the resulting job creation as firms re-invest in their capital stock. This in turn will make companies more competitive against foreign rivals and boost productivity levels, or standard of livings.

Studies indicate that capital investment on a per capita basis jumped significantly in the years immediately following the 1997 harmonization in Newfoundland and two other Atlantic provinces.

This message, however, has been lost in the debate in Ontario and British Columbia. Instead, much of the focus has been how the harmonized tax will hike living costs for thousand of families already struggling in a tough economy. More of the tax burden will shift toward consumption, meaning individuals will be on the hook for more expensive haircuts, Internet service and newly built real estate, among other things.

“I don’t anticipate that the average consumer to jump up and down with glee,” says Jock Finlayson, executive vice-president of policy at the Business Council of British Columbia.

He says his members are likely to use the cash to replace ageing capital stock, as data indicate the provinces lags the national average in terms of capital investment on a per capita basis – which is an indication of living standards. He added it would be of particular help to the capital-intensive, but battered, forest products sector – or at least those that are able to survive.

Jayson Myers, president of the Canadian Manufacturers and Exporters, says an HST would be a welcome cushion, especially as exporters have to learn to live with a stronger Canadian currency, which makes their goods more expensive in the global marketplace.

“Frankly, it is international competition that is driving prices down so manufacturers have to respond,” says Mr. Myers, adding he’s a bit frustrated with the tone of debate over short-term cost increases.

“It is very clear coming out of this recession that it can’t be business as usual. For us to recover and restore the jobs lost, we have to put in place a strategy for economic growth. The HST is not an attractive political move, but it is an important part of the economic puzzle.”

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