Home Heating and HST

I would like you to imagine that you are a parent with two grown children.

Younger Daughter is still struggling to establish herself in a career and pay off student debt. She lives in a one bedroom apartment and is able to afford her rent, though is concerned about the upcoming yearly rent increase. She currently receives HST rebate cheques.

Older Daughter works full time as does her partner, and while they plan to have kids some day they are still DINKs (dual income, no kids). They are not independently wealthy but after being frugal they have managed to buy a modest single family home in the suburbs. She earns enough and does not get HST rebate cheques.

Now imagine you've just opened the paper and read about the NDP & PC plan to take HST off of home heating.

  • This is not a tax cut, it is a tax deferral. Ontario is in debt and the lost revenue will have to be made up by issuing bonds to cover the $350 million difference. But do not worry, neither you or your daughters will have to pay the interest on those bonds. Your grandchildren will.
  • Older Daughter and her husband will get a bigger tax cut than Younger Daughter, even though they are already comfortably middle class and have no fear of unpaid utility bills.
  • Younger Daughter won't see any direct tax cut. She doesn't pay for heat - it's built into her rent. Every year her landlord raises the rent by the maximum allowed guideline. This year will be no different.

If we are going to put millions into lowering energy costs it should be done differently:

  • Increase existing HST rebate cheque amounts. This puts money into the hands of those who are most likely in need of help with energy bills: seniors, single moms, students, low-income families.
  • Restore the home energy retrofit program and help people lower their energy use. Under the current NDP-PC plan Ontario will issue bonds to pay expenses. Going with a retrofit program means issuing bonds to pay for capital investments. One makes economic and fiscal sense. The other does not. The retrofit program also creates local jobs in the trade sector and Ontario will recoup some of the spinoff revenue from that.

The Liberals have responded by saying they would use the money to offer home retrofit grants to seniors (not the same as a home energy retrofit grant though - it could be used for a new bathroom with mobility aids). I'd say they are planning to drop that program if the NDP-PC bill goes through, on the excuse that the money is no longer there.

Debt financing these populist programs is going to hurt Ontario when our debt needs to be rolled-over. See Italy:

Italy needs at least €300 billion in new debt to rollover the annual debt that comes due and also adds another €30 billion in new debt. The near stagnant economy for a decade does not create enough new jobs or increase productivity that generates more income for the state.

The surge in the interest rates in the last six months, from as low as 3.3% to 6.5%, has added to the cost of the debt to the treasury. And Italy has just unleashed the virtual spiral of more cuts leading to lower revenues that beget more cuts.

Sooner or later these budget cuts will seep into the economy and debt-to-GDP ratio will begin to rise instead of falling as demanded by international lenders.