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McGuinty to consider harmonizing sales tax

From Friday's Globe and Mail

Ontario Premier Dalton McGuinty says he is considering changing the province's sales tax, providing the latest sign of warming relations between Queen's Park and Ottawa.

Federal Finance Minister Jim Flaherty tried just over a year ago to persuade Ontario to harmonize its 8-per-cent provincial sales tax with the 5-per-cent federal goods and services tax. But the talks went nowhere amid concerns that families could end up paying more for basic goods.

The weak economy, however, is leading to a new spirit of co-operation between the federal and Ontario governments as they strive to help businesses become more competitive.

“I think we need to take a long, hard look at harmonization,” Mr. McGuinty told reporters Friday. “I just think we need to give a rethink now in a number of areas which we've rejected in the past.”

Mr. Flaherty said Friday he is encouraged.

“I have long said provincial sales tax harmonization is the single most important step provinces with retail sales taxes could take to improve the competitiveness of Canadian businesses,” he said. “The federal government is willing to work with all non-harmonized provinces, including Ontario, to facilitate the transition to a harmonized tax.”

Mr. McGuinty recently raised the topic with Prime Minister Stephen Harper and said he would like to continue their conversation. But he said he remains concerned that households could face higher costs unless Ottawa provides financial support.

Under the existing regime, consumers in Ontario do not pay sales tax on goods such as heating oil, books and children's clothing. These goods would become taxable under a harmonized system unless Ottawa agrees to exempt them.

Harmonization would help businesses by reducing their costs because provincial sales tax would no longer apply to machinery and equipment.

“It's not an easy issue, but it's one that I think we've got to come to terms with,” Mr. McGuinty said.

The Ontario Chamber of Commerce released a report this week that says harmonizing provincial and federal sales taxes would mean short-term pain for consumers, but long-term gain for the economy. It says businesses would save about $100-million a year.

Four provinces have harmonized their taxes with the GST: Quebec, Nova Scotia, New Brunswick and Newfoundland and Labrador. Alberta has no sales taxes.

A senior Ontario government source said the openness to harmonization is part of a new, more co-operative relationship between the province and Ottawa. This trend was also apparent when Mr. Harper recently backed down on a controversial measure that would have shortchanged Ontario under a plan to add new seats to the House of Commons.

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