JONATHAN HAYWARD
Mike Moffatt is a chemical industry consultant and a Lecturer in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business
A second justification of the Ontario NDP plan to halve the HST on gasoline has to do with helping low-income families:
"Rising gas prices are putting the squeeze on low-income Ontarians. The Ontario government needs to respond to this problem".
If the Ontario government wishes to help low- and middle-income families in a permanent way (a noble goal), they need a policy where the bulk of the benefits goes to those groups. Lowering taxes on gasoline is not one of those policies.
The Ontario NDP plan saves the average household $150 a year, with wealthy drivers receiving disproportionately larger shares of the gains. In "Forcing gas prices lower a subsidy for wealthy drivers" my colleague Kevin Milligan cited Statistics Canada figures showing that households earning more than $90,000 would receive five times the benefit from lower gasoline prices than a household earning less than $30,000. If we want to assist low-income families, lowering the price of gasoline is a particularly ineffective way of doing so.
An obvious solution would be to just give each household $150 a year in cash instead of an average $150 a year savings in lower gas prices. This alternative plan would only increase gasoline consumption a negligible amount and would do far more to help low-income families. However, it also treats a billionaire's family the same as one living on the poverty line, so it can probably be improved.
Currently, Ontario has a sales tax credit to assist-low income individuals and families with their expenses. The plan allows for a maximum payment of $260 per year per family member in a household. The benefit is clawed back at the rate of 4 per cent per dollar earned after a threshold is reached, with the threshold being $20,000 for singles and $25,000 for families. A family of four earning less than $25,000 a year receives a cheque for $1,040. As that family's income is increased, the cheques become smaller until the family earns $51,000 a year, at which point their income is considered too high for the tax credit.
For approximately the same $500-million cost as the HST gas tax cut, we could increase the amount of the sales tax credit from $260 to $340 per person per year. This would put an extra $320 per year in the pockets of families of four earning under $51,000, and families earning between $51,000 and $59,000 would now be eligible for the program.
Any plan designed to assist low-income families should have the gains go directly to low-income families. Increasing the sales tax credit accomplishes this. Lowering gas prices does little for low-income families as the gains largely accrue to high-income families.
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