HST inflation hits low-income Islanders, economist suggests

One year after the introduction of harmonized sales tax on P.E.I. the province continues to lead the country in inflation, and there are signs that inflation is hurting low-income Islanders the most.

To light a house and to heat a home, irrespective of one's income you have to do it.- David Murrell, University of New Brunswick

The consumer price index on P.E.I. has increased 2.68 per cent, compared to just 1.14 per cent nationally.

The latest Statistics Canada data show those price increases have been spread unevenly across different goods and services. Energy costs have taken the biggest hike for Islanders, up 7.58 per cent over the past year, compared to just 1.56 per cent nationally. This is despite an HST exemption on furnace oil. Rent and housing costs have increased 4.5 per cent, more than twice the national rate.

By contrast food costs are almost unchanged and health and personal care products are down slightly.

University of New Brunswick economist David Murrell, who has studied how prices have changed in other provinces under the HST, said in those cases the tax has had a disproportionate effect on low-income earners. He said the numbers suggest the same is true on P.E.I.

"The really big-hit items, gasoline, [in] some provinces electricity, that hurts the low-income households disproportionately more," said Murrell.

"To light a house and to heat a home, irrespective of one's income you have to do it."

That inflation remains high even a year after the introduction of HST bears out a prediction Murrell made before the Island made the switch.

Generally provinces that introduce HST see prices drop as businesses pass along their tax savings, but Murrell predicted that would take longer on P.E.I. He said because the province is small there is less competitive pressure for businesses to lower prices.

But the prices that have risen the most, energy prices, aren't expected to drop at all, at least not as far as HST is concerned. Utility companies like Maritime Electric don't qualify for as many HST credits, so have fewer savings to pass along to customers.

In an email to CBC News, Erin McGrath-Gaudet of the Canadian Federation of Independent Business said few Island businesses have dropped their prices on account of the HST, and she doesn't expect many ever will. Rather, she said businesses receiving tax credits now have a bigger cushion to absorb future increases in operating costs, and so can go longer without having to increase their prices.

"Where the 'lower prices'comes into play is that businesses won't be increasing their prices as they normally would have had to in order to accommodate higher costs on their end," she said. "For instance, higher energy costs, the Canadian dollar making imports more expensive, etc."

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