As difficult as it is, a crisis like the financial meltdown ravaging economies presents opportunities to produce structural change.
Crisis creates energy. Undirected, the energy can be destructive if it produces panic, lethargy or ill-conceived policies to ‘fix’ the problem. Properly channeled, the energy can result in changes with long-term benefits.
South of the border, President Barack Obama has seized on the opportunity to pursue structural changes in health care, education, regulatory oversight, protection of the environment, and other areas. He doesn’t want to simply fix today’s problem, but rather set the table for future sustainable growth.
The winds of change are also blowing in Ontario. Let’s hope Premier Dalton McGuinty harnesses that energy for change in today’s budget.
It’s a risky move, but the budget is widely expected to contain measures to harmonize the province’s eight per cent PST with the feds’ five per cent GST, for a blended sales tax of 13 per cent.
It’s risky because the move is sure to alienate some voters and business sectors, but it’s worth doing as it stands to make the province more competitive and attractive to investment, particularly in the hard-hit manufacturing sector.
Manufacturers would benefit with harmonization through the removal of the sales tax for the purchase of machinery and equipment. However, a whole host of consumer items now exempt from the PST, but subject to the federal tax, would be taxed at the harmonized rate of 13 per cent.
The ensuing tax break for manufacturing, and the related reduction in paperwork and red tape, will make the province a more attractive place to do business. That translates into a jobs strategy.
A consumption tax on a wider range of goods also opens the door for a government to ease income tax rates, perhaps even taking ‘working poor’ off the tax rolls completely.
While it presents long-term benefits, the government needs to phase in the changes gradually, to minimize consumer impact. People now struggling to purchase the basics, such as diapers, can’t afford an immediate increase in those costs.
How McGuinty introduces this structural change will be as important as the actual doing of it.
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