Western New York merchants are already looking forward to a boost in sales from Canada's controversial goods and services tax (GST), which goes into effect today.
The new consumption levy may swell the ranks of Ontario shoppers who regularly cross the border for shopping sprees, observers say.
The goods and services tax, which passed the Canadian Senate two weeks ago, imposes a 7 percent federal levy on nearly all merchandise and services. The tax is added on top of provincial sales taxes, which range from 8 percent to 10 percent.
That means the buying public will have 15 percent to 17 percent tacked on to nearly all purchases, except groceries. The GST affects the price of everything from haircuts, funerals and legal fees to music lessons and postage stamps.
John Winter, a Toronto-based retail consultant, believes the GST initially will benefit Buffalo retailers. "It looks like the GST is going to be a bonanza for stores in your area," he said.
One-third of the Ontario residents recently polled by Winter said the new consumption tax will force them to do more shopping in the United States. He predicted that the GST will boost cross-border shopping by 25 percent. According to an earlier study by Winter, southern Ontario retailers already lose $115 million annually ($2.2 million a week) to their counterparts in the Buffalo-Niagara Falls area.
Canadians' hatred of the GST is so extreme many probably will boycott their hometown stores and shop in U.S. outlets. Recent polls by Gallup Canada show that between 75 percent and 85 percent of Canadians are opposed to the new consumption tax.
But whether or not Canadians will permanently alter their spending habits because of the GST isn't yet certain. For example, if the value of the Canadian dollar, which currently stands at 86 cents to the U.S. dollar, falls, some Ontario residents may find it's too expensive to shop in the Buffalo area.
Glenn B. Gandy, executive director of the Niagara Falls, Ont., Chamber of Commerce, said he supports the GST but is concerned about how it is being implemented.
"This is a very difficult time for the economy and this is going to hit us like a bullet," he said. "They should have harmonized the federal and provincial tax systems before they introduced the GST."
Gandy explained that any competitive advantage Ontario businesses might have gained from the GST has been wiped out because the 8 percent provincial sales tax hasn't been discarded or even lowered.
The goods and services tax replaces Canada's 73-year-old manufacturers sales tax of 13.5 percent, which raised about $10 billion a year but was considered inefficient and levied on a very narrow base, said Ross S. Preston of the Economic Council of Canada. The manufacturers tax discriminates heavily against industry and hurts Canadian exporters, he said.
Some consumers probably will need a calculator if they want to do any comparison shopping because retailers will not all charge the GST in the same way.
Despite Ottawa's efforts to get merchants to include the 7 percent levy on the shelf price, at some stores, such as Sears Roebuck & Co., the Bay and Eaton's department stores, the advertised and ticketed prices will not include the tax. Instead it will be added at the cash register.
Many small-business owners say they plan to post GST-included prices because it is too difficult to reprogram their computerized cash registers.
The GST represents a revolution in the Canadian marketplace. More than 1.3 million businesses will be affected. And many aren't happy about it.
For example, the Canadian Chamber of Commerce estimates that between 300,000 and 400,000 entrepreneurs haven't bothered to register for the GST.
The goods and services tax is expected to raise $17.7 billion in its first full year of operation and 10 percent of that will be sent as rebates to low-income Canadians.
The government of Prime Minister Brian Mulroney says the tax is basically revenue neutral because it replaces an existing tax and because of the rebate system.
But some critics say it could raise untold billions, and they also expect the rate to be increased to help the government get its runaway budget deficit under control.
Economists say the GST will boost inflation, and some analysts worry it will further weaken an economy that slipped into recession in the middle of last year.