Premier Dalton McGuinty’s plan to harmonize sales taxes threatens 21,200 construction jobs and will end up costing new home buyers at least $800 million, where GTA purchasers will pay $575 million of the $800 million as announced in the March 26 budget. Prior to the budget, BILD estimated that if the taxes were harmonized, Ontario homebuyers would end up paying $2.4 billion – that was before Finance Minister Dwight Duncan revealed that residences costing less than $400,000 would be not subject to the HST and partial rebates would be given to homes less than $500,000. But new houses costing more than $500,000 would be subject to the harmonized tax.

The 28-page report on the implications for sales tax harmonization on new home buyers in Ontario was written by veteran housing analyst Frank Clayton, PhD, of Canada’s largest independent real estate consulting and advisory firm Altus Group, for the Building Industry and Land Development Association (BILD). The report states that the melding of the 8% PST with the 5% GST on July 1, 2010 will be especially difficult on buyers in the GTA due to higher house prices and the impacts will specifically hit new housing in the GTA due to its higher price level and middle house incomes; new homes over $400,000 (in the BTA) are not exclusively owned by the very wealthy – that rather a significant amount of such households are considered to be “middle class”.
The report looked at 9 Ontario municipalities and 3 different home types, revealing tax increases for single detached homes in markets outside the GTA ranging from $8,597(Windsor) to $17,049(Ottawa) and within the GTA ranging from $24,566(Mississauga) to a mega $46,676(Toronto).

About one third – or about 36% – of all new sold GTA homes cost more than $400,000 and even a 10-15% reduction in demand because of this new tax would result in 7,400 to 11,100 fewer units being built. This translates into 14,100 to 21,200 jobs in construction as well as related industries and $720 million to $1.1 billion lost in wages.

BILD Chair, Leith Moore added the GST/PST harmonization proposal could not come at a worse time and it runs completely contrary to the Province’s effort to stimulate spending as well as jobs. Moore said that there’s no point in putting the gas pedal to the metal while braking equally hard with the other foot – that is what harmonizing the sales tax on housing amounts to. In addition to housing, the 13% tax will boost the price of hundreds of items such as gasoline, heating fuel, fast food, newspapers, magazines, taxi fares and dry cleaning, along with other thing that are now only subject to 5% GST.

Meanwhile, Ontario Home Builders’ Association president Frank Giannone said harmonization is a “poison pill” for housing as it’s the only product which keeps on paying property tax after being consumed. Thus to cripple the new home buyer market at this time not only damages our provincial economy but hurts the government in terms of revenues. In addition, the HST would also add additional taxes to future renovation projects, but we all know tax increases drive consumers into the underground economy and into cash deals. Giannone says that this makes no sense.

As matters currently stand, builders pay an average of 2% PST included in the price of each new home and builders are prepared to keep paying at that rate, regardless of all the other taxes, fees and levies which they endure.

The premier insists that the Liberals are full-steam ahead with the reform – “We need to do this to strengthen our economy”. On the other hand, Interin Progressive Conservative leader Bob Runciman is against McGuinty’s plan as due to the current economic downturn, this is the wrong time to move forward with McGuinty’s ill-advised plan to yet again increase taxes on all people of this province.

David Poon, a real estate agent with Cathedraltown, a hosing development in Markham, believes that the harmonized tax will boost people’s decisions to buy homes. “There’s still a lot of time but I’m already seeig prospective buyers scrambling to find homes”. He states that this isn’t making buyers happy; “If my house costs about $500,000, I’ll have to pay another $40,000 after July 1st.” said Poon, calling this harmonization nonsense.

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