CEO of the Building Industry and Land Development Association, agrees with me

Stephen Dupuis agrees with me, when he writes in today's Toronto Star that Flaherty and McGuinty's "HST will fuel underground economy".

I made this point myself ten days ago.

Good on him for this statement of the obvious, that seems to be lost on those people in ivory towers....Flaherty and McGuinty. Hard to have smart government when its staffed by dumb people. Not to worry, as the reduced corporate tax rates that made this HST insanity necessary are still safe.

WHEW, that must take a real load off your mind.

HST will fuel underground economy
Toronto Star
Opinion
Apr 11, 2009
Stephen Dupuis

If those who made the final decisions on the humungous sales tax thought they were neutralizing most of the backlash by exempting new homes under $400,000, concentrating the devastating impact on homebuyers in the Greater Toronto Area, they forgot that the tax will drive up the cost of professional renovations throughout the province, angering contractors and homeowners alike.

Under the harmonized sales tax (HST), effective July 1, 2010, professional contractors will now have to charge 13 per cent on their final bill with no consumer rebate, regardless of price. The goods and services tax (GST) was always there, as was approximately 2 per cent embodied provincial sales tax (PST), so we're looking at a government-driven cost increase of 6 per cent, just like that.

Renovation is big business in Ontario, generating as much or more employment, investment and tax revenues for all levels of government as new home construction. And by and large, renovation contractors tend to be small or family businesses where husband/wife and/or father/son(s) and daughter(s) are working long, hard hours to make their livings in an increasingly hostile environment.

If there is one thing that drives professional renovators insane, it's having to compete against illegitimate contractors working for cash in the underground economy. It's already a huge problem and it's about to get a whole lot worse with tax harmonization.

As one contractor wrote, "I was elated with the recent Home Renovation Tax Credit. Wow, an incentive for consumers to have an invoice for services paid – the underground guys hate that. It now seems that this harmonized tax has just created a greater incentive for the tailgate contractors to flourish, and push some others over the line.''

Another wrote: "Prior to the 7 per cent GST, I had clients who would ask if I would consider a 10 per cent discount if they paid cash. After the 7 per cent GST came into effect, clients changed tactics. They disliked the GST as much as anyone and would ask if they could pay cash to avoid it. Bingo! The underground renovator no longer had to give a discount for cash – henceforth the government would do it. Clients were now happy simply saving the hated 7 per cent. On July 1 2010, that incentive to pay cash will jump to 13 per cent!"

Yet another contractor wrote: "The legitimate, professional contractors who collect and pay all our taxes are the easy targets. It seems that the government is not really serious about tackling the underground economy.''

It's not like we didn't warn the provincial government of the impacts. In late January, Ontario Home Builders' Association president Frank Giannone called harmonization a "poison pill" for housing, specifically noting that harmonization would result in significant price hikes, job losses and an expansion of the underground economy.

In a pre-budget report titled "Housing is Different: Implications for Sales Tax Harmonization on New Home Buyers in Ontario,'' the Altus Group pointed out that the adverse impacts of harmonization on new home buyers apply equally to the renovation sector.

By fuelling the underground economy, harmonization will get the province less money from renovation, not more.

An email I received from a colleague the night of the budget pretty much sums up the situation. "Feeling harmonized yet? Here comes the underground economy on steroids."

Stephen Dupuis is president and CEO of the Building Industry and Land Development Association. The views expressed are those of the president. Email:

president@bildgta.ca.