Tax hike for consumers $60M under HST: economist

Prince Edward Island consumers will pay between $60 and $80 million more in sales tax in the coming year after the introduction of the harmonized sales tax, a UPEI economist expects.

That amounts to somewhere between $430 and $570 each for every man, woman and child in the province.

UPEI economics professor Jim Sentance also says rebates being offered to low- and middle-income households won't be enough to shield them from the new tax, at least initially.

The increased tax burden on consumers is due to two factors. Overall, more tax is being collected under the HST. In addition, sales tax is being shifted away from businesses, who can claim back much of the sales tax they pay, to consumers, who cannot.

Sentance told CBC News over the course of the next few years the taxes paid by consumers will fall, because the reduced expenses for businesses will eventually lead to lower base prices. But he warned that will not happen right away.

"Businesses aren't going to pass on the savings that they get out of the goodness of their hearts," said Sentance.

"They're going to pass it on because the forces of competition are going to force them to pass the savings on. But it takes time."

The province is providing rebates of up to $200 per family to protect low-income Islanders. Sentance said that won't be enough until base prices start to come down, and the government should offer more until that happens.

He noted in 2010 Ontario offered payments of $1,000 per family during the transition to HST. The province is also providing quarterly rebates as PEI plans to do.

Finance Minister Wes Sheridan disputes Sentance's prediction of how long it will take base prices to drop. While some industries may take time, he said, he expects some prices to fall on the first day.

"All it takes is one competitor in each of these sectors to say I've got it figured out, I know how much I'm going to save, I'm going to pass it on," said Sheridan.

Sheridan maintains low- and middle-income families will be protected when the HST is introduced on April 1.

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