As Canada’s premiers met in Regina for the annual Council of the Federation, Federal Finance Minister Jim Flaherty was at it again. He took another opportunity to urge the provinces to harmonize their own sales tax with the GST. Now that Ontario and B.C. have chosen that direction, there is fresh reason for Saskatchewan to consider the same.

Harmonization has some clear benefits. First, it simplifies taxes for businesses and consumers. No longer will there be some items that are charged GST but not PST, or vice versa. This simplicity means less paperwork and more efficiency for businesses and government. Businesses could remit sales taxes with one form, under one set of rules, to only one tax collector. The Canada Revenue Agency could do it all through its existing resources and eliminate the need for provincial sales tax collectors. This efficiency is an economic benefit in itself, as the World Bank estimates that 5 per cent of the value of sales taxes is lost to administrative and compliance costs.

Businesses would also benefit in a much bigger way, since harmonization would eliminate PST on most business inputs. Any PST paid for input costs would be returned to the business in tax credits, as is already done with the GST. For example, a furniture manufacturer currently can claim a GST tax credit for the GST paid on wood used to build the furniture, but not the PST on the wood. Under a Harmonized Sales Tax (HST), both taxes could be claimed as a tax credit.

Business purchases currently account for 54 per cent of the province’s PST revenue, a figure that would drop to 14 per cent under harmonization. This represents a $460 million annual tax break for businesses that would help improve competitiveness. It also ends ridiculous PST quirks, such as the $13 million the province charges new business owners each year for the used equipment they acquire when buying an existing business.

The problem is that consumers would pick up the slack. Harmonization means an expansion of the PST where it previously did not apply. This means added costs for utilities, restaurant meals, residential home construction, gasoline, children’s clothing and personal care services, Yes, businesses paying less tax should mean more investment, job creation and lower prices in the long term. However, in the short-term, it’s painful for consumers, especially those who have children or lower incomes. An HST would cost most consumers an additional $250 to $750 per year.

These consequences are a significant obstacle from a political and policy perspective. Fortunately, the province is not without options. Saskatchewan could lower its portion of the sales tax as Nova Scotia, Newfoundland and Labrador, and New Brunswick did when they harmonized with the GST in 1997. The government could also increase the basic personal exemption on income taxes, boost PST tax credits or lower gasoline taxes. This would do wonders to help those most adversely affected.

Although the province must be careful in the implementation, the time to harmonize may have come. Manitoba’s NDP government recently announced they’re taking a hard look at the idea. Should they follow through, Saskatchewan and PEI would be the only provinces with an independent sales tax. This transformed landscape has changed harmonization from a question of “if” to one of “when and how.”