Retailers shouldn't wake to holiday tax hangover after Jan. 1 GST cut, group says

Steve Rennie, THE CANADIAN PRESS

OTTAWA - Retailers shouldn't wake up to a tax-change hangover on New Year's Day when Ottawa trims another point off the GST, says a group representing small businesses - even though the cut comes at one of the busiest times of the year.

Unlike the last time the federal government trimmed a percentage point from the GST in July 2006, this cut comes at the tail end of the busy Christmas shopping season.

"This is a little more tricky this time around because people return goods on the first week in January," said Garth Whyte, executive vice-president of the Canadian Federation of Independent Business.

"There's a little bit of a challenge there that employers are going to have to deal with... people are preoccupied with a very busy season. Lot of things happening."

Retailers will have to change their sales, billing, purchasing and accounting processes once the GST is lowered to five per cent from six per cent on Jan. 1, 2008.

If retailers' experience from the previous July 2006 rate is any indication, the upcoming cut should go off without a hitch. The federation said informal surveying after the July 2006 cut found that 90 per cent of its members reported it took them less than a week to make the adjustment, with little trouble.

The federation's research also showed its members expected to spend an average of $574 per business to make the switch to six per cent GST.

The Retail Council of Canada echoed the federation's optimism, predicting retailers wouldn't have trouble adapting to the cut.

"We've been through this once before so the experience is there, and we're anticipating that it'll be fine," said Derek Nighbor, the Retail Council of Canada's vice president of national affairs.

"We're quite confident that retailers will be compliant and set to go."

One of Stephen Harper's five key planks in the 2006 election campaign was a pledge to slash the then seven per cent GST by two percentage points. In their first budget, the Conservatives dropped the rate to six per cent and vowed to cut the GST again before 2011.

But that was before the government was faced with an embarrassment of riches in the form of a ballooning surplus expected to reach $11.6 billion for the 2007-08 fiscal year. Even after the Tories use $10 billion to pay down the federal debt, that would still leave a surplus of $1.6 billion.

The burgeoning government coffers prompted Finance Minister Jim Flaherty to announce in last month's economic statement that Ottawa would make its second GST rate cut, effective Jan. 1, 2008.

It costs about $5.5 billion for each point the GST is lowered, a total of $11 billion for both cuts.

© The Canadian Press, 2007