The introduction of the harmonized sales tax in two of Canada's largest provinces and a wave of other new expenses could take a toll just as Canadians were beginning to feel some confidence about opening their wallets again, experts say.
Shoppers in British Columbia and Ontario start paying the HST on Saturday on a number of services — including theatre packages, airplane tickets and gym memberships — that will continue to be delivered after July 1, the day the HST will start to be broadly applied in both provinces.
The tax, which combines the five per cent federal goods and services tax with the provincial sales tax, has met with opposition from those who fear it will drive up the cost services that were previously exempt from provincial sales tax.
It comes as electricity rates in Ontario rise almost 10 per cent effective Saturday and consumers across the country brace for higher mortgage rates and rising municipal taxes.
The rising costs come as Canadians appear to be growing wary of their future purchasing power, according to the Conference Board of Canada's consumer confidence index, which fell a surprising 7.8 points this month to 84.8, the lowest it's been since December.
Taxpayers lashing out
Kenneth Wong, a marketing professor at Queen's University, said the B.C. and Ontario governments are feeling a backlash from taxpayers who are being asked to pay more at a time when they still lack full confidence that the economy is in recovery.
Wong said the HST is supposed to benefit provincial economies by cutting costs for businesses, which are expected to pass the savings on to consumers. But the pain of the tax will be felt most directly at the individual level.
And many taxpayers in Ontario don't know they'll receive "transition" cheques of up to $1,000 per family starting in June.
"I think consumers could have been told that what you may end up paying a little bit more for at the cash register will come back to you in lower income taxes and lower prices," he said.
Homeowners in all provinces could also face a hike in interest rates, making their debt more expensive as early as June, when the Bank of Canada may raise its key rate from its record low.
However Peter Aceto, president and CEO of financial services company ING Direct said while Canadians are not happy about paying more, he doesn't think it will have a long-term effect on the recovery.
Higher interest rates
"After July 1, things will slow down … but then I would expect things getting back to normal," he said.
The B.C. government pushed through legislation enabling it to implement the HST on Thursday, arguing the tax will help the economy by encouraging investment.
But former premier Bill Vander Zalm is spearheading a petition drive to force a non-binding referendum to repeal the tax under the province's recall and initiative legislation.
In Ontario, the opposition criticized Revenue Minister John Wilkinson's advice to consumers to make some purchases ahead of Saturday.
NDP Leader Andrea Horwath said advice from the revenue minister to buy gym memberships, summer trips and theatre subscriptions ahead of the tax is an admission that the HST is going to cost families more than they can afford.