The Saskatchewan director of the Canada West Foundation says governments and bureaucrats shouldn't be afraid to discuss the "H" word - harmonization.
"I think we should be adults and we should talk about things," said Jack Vicq, business professor at the University of Saskatchewan and a lead researcher in the reporter A Tax Framework for Saskatchewan's Continued Prosperity.
Vicq was in North Battleford to speak about that report's recommendations at a Battlefords Chamber of Commerce luncheon Nov. 9 at Don Ross Centre.
"We don't necessarily have to agree or disagree, but let's talk about it. Then the people who get elected will make the tough decisions with full knowledge," said Vicq.
That's not to say that harmonization of the sales tax (an HST) is something Vicq is endorsing right now in reforming the taxation of business and investment in the province.
Instead, the Canada West report recommended a different option: reforming the corporate income tax by aggressive reductions in the corporate tax rate and small business rate to three per cent.
Part of the reason for that recommendation, he said, is the political environment in Saskatchewan does not favour the harmonization of the PST with the GST.
Nevertheless, the Canada West report did have favourable things to say about harmonization, saying the competitive environment for Saskatchewan would be enhanced by a properly implemented combination of PST with GST.
Harmonization at a provincial rate of seven per cent was presented as one of three options for reforming the taxation of business and investment. The second option, and the one ultimately supported by Canada West Foundation, recommended the second option of "aggressively" reducing the corporate income tax general rate to nine per cent and small business rate to three per cent. A third option is to reduce the general rate to 10 per cent, small business rate to 3.5 per cent and provide PST offsets.
Vicq told reporters the objective of each of the options presented in this category was for Saskatchewan to become competitive in the "marginal investment tax rate on new investment."
"What we were trying to do is have three options that were similar in result," Vicq said.
The report authors recognize, however, changes to the PST would take a "combination of political and public will to achieve - neither of which exist today," according to a summary of the foundation's report provided at the meeting. The report also recommended monitoring the effects in British Columbia and Ontario where the HST has been implemented, and to act accordingly in the future, also noting Saskatchewan must consider fully the benefits and risks of being left behind as provinces modernize their sales taxes.
Both Ontario and British Columbia have seen heated opposition to the introduction of HSTs. In the past weeks, Premier Gordon Campbell of British Columbia announced he would be resigning, in part due to his plummeting popularity over the HST issue.
Vicq noted in his address that the issue of changing the way business investment is taxed is a low priority given the political climate. He suggests putting off those reforms to 2017-18.
Instead, his report recommends moving forward quickly with several changes to education property taxes, municipal taxes and property taxes to come in over the next four years.
The recommendations outlined in the Canada West report, which Vicq went through at length, are as follows:
In reference to the education property tax, residential and non-residential, the recommendation was to transfer additional education funding away from property taxes to have it come from other provincial government sources. That should be done beginning next year.
Regarding education property tax. the report called for a cap to be established on the differential in the effective rate of tax for non-residential properties at 1.43 of residential. This was described as a benefit to non-residential property owners and would not affect agricultural land or residential property. This would happen over 2011-2014.
The third recommendation was to reduce the assessment cycle for all residential and non-residential properties in municipal and education property tax from four to two, and simplify the program administration of the assessment process - a move the report says would benefit all property owners.
The fourth recommendation called for a move to a dual rate structure for personal income tax, with the 15 per cent high-income rate reduced to 12 per cent, with the lower income bracket set at nine per cent. The report says this will benefit all taxpayers by reducing all the taxes everyone would have to pay, and should be brought in beginning in 2013.
The fifth recommendation is for the 1.43 cap for non-residential properties, outlined earlier for education property taxes, to be applied to municipal tax on non-residential properties in Regina and Saskatoon by 2017.
The sixth recommendation called for the elimination of the Corporate Capital Tax by 2018 on any financial institutions who now pay the tax.
The final recommendation called for the reduction in the general rate of corporate income tax to nine per cent and the small business rate to three per cent by 2017-2018.
The changes will cost money. The report estimated the cost of the personal income tax changes would cost $525 million, for example. Reforming corporate income tax would cost $232 million.
As a result, implementing the recommendations in his report will take time, Vicq said.
"It's going to take long-term without going into a deficit," he told reporters. "The economy, as you know, is not coming out of the recession as quickly as a lot of people thought it would be. So we had that to think about. We have the recent discussion of potash royalties to think about, so the longer term plan you have, the more likely you will be able to get things done."
Vicq's call for lower taxes and reforms were warmly received from many of the businesspeople and Chamber members in attendance.
The recommendations are being promoted in a provincial tour that has taken Vicq and the Canada West Foundation to various events hosted by Chambers of Commerce across the province. The foundation is seeking support for their proposals through letters to the editor or to MLAs and was urging attendees at the luncheon to voice support for their proposals to make all their proposals official government policy.
