There is substantial agreement that the provinces in Canada that still have a separate provincial sales tax (PST) and goods and services tax (GST), particularly Ontario, are incurring significant unnecessary costs.

As highlighted in a recent C.D. Howe report on tax harmonization, these costs include a loss of international competitiveness, excessive administration costs and reduced employment and incomes over the longer term. In general, the major beneficiaries of tax harmonization would be businesses currently paying PST-inflated prices for business inputs that put them at a competitive disadvantage in international markets.

However, while tax harmonization would benefit many, there are some groups which could experience a significant additional tax burden.

According to a recent study by Dr. Frank Clayton of the Altus Group, new home buyers and home owners who hire contractors for renovation work would be particularly hard-hit by a harmonized sales tax (HST). That is, unless the HST took into account the unique nature of this essential economic sector.

Based on a survey of new homes in the Greater Toronto Area, the total tax burden on a median-priced single detached house is approximately 6.7% of the value, or $36,545. However, if new homes were subjected to the full brunt of an HST, the tax burden would roughly double, to 13%. This would add roughly $12,000 to the price of a one-bedroom apartment and $33,000 to the price of the typical single detached house.

The impact of this change would not only price a large number of first-time home buyers out of the market, it would also have a major negative impact on construction employment across the entire province.

In order to prevent this worst-case scenario from developing, Dr. Clayton recommends holding the provincial portion of any new HST to 2% on new homes, a rate that would maintain the province's current tax take and not cause a sharp deterioration in new home affordability.

Having a set rate would eliminate the need to introduce a HST rebate program which, if it followed the pattern of the GST rebate program, would not provide sufficient tax relief for new home buyers.