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Getting rid of the penny
Mar. 30th, 2012 11:19 amIn one sense, it's high time, but the government doesn't seem to have thought things through cleanly. Or if they have, they haven't been entirely up front about it.
Cents will still be used for electronic payments and for bills of exchange. Only cash transactions will involve rounding up or down. "If businesses round cash transactions to the nearest five-cent increment, any gains or losses relating to cash transactions (a maximum of two cents per transaction) will balance out over time", says the Government of Canada website.
Except that they won't. For purchases in the two-to-ten dollar range, where businesses frequently don't allow debit purchases, maybe (although microtransaction cards may mess that up, as well). And for people who pay bank fees on a per-transaction basis, maybe not. But people who have a debit card backed by an account with a high enough balance to escape fees will tend, if only marginally, to pay cash when rounding would be down, and pay by debit when rounding would be up. Not on every transaction, of course; but I would expect there to be a broad bias over large numbers of transactions against the merchant and in favour of the customer. $12.02 purchases will tend to be paid in cash, with values rounded down to $12.00, but $12.03 purchases will be paid in debit to avoid the rounding-up to $12.05.
The answer is reasonably obvious -- to have prices set so that they will be an even multiple of 5 after tax. This can be done easily enough if every item is purchased separately: in Ontario, with an HST of 13%, a 1.77 purchase is $2.00 plus a mill (rounded off) after tax. However, with an prime factor as the percentage multiplier, there will be an exact match only every $5.00, i.e. 65 cents in tax; which means that the tax payable will be slightly different depending on what combinations one buys in.
There is a real solution to this, of course, which is to have businesses post prices including tax as rounded values. This can be done with the HST, as it's not restricted by the constitutional limitations which require that provincial sales taxes be posted and visible, but it's currently not popular with businesses, which would much rather post a lower price and bump it up at the till. (Some stores, like the LCBO, post a blended price at rounded values. The LCBO is not going to have problems with this.) The abolition of the penny may be just the shove that's needed to get merchants to post the price you will pay rather than the price before tax -- because otherwise they will lose out, on average, over a large set of transactions.
Cents will still be used for electronic payments and for bills of exchange. Only cash transactions will involve rounding up or down. "If businesses round cash transactions to the nearest five-cent increment, any gains or losses relating to cash transactions (a maximum of two cents per transaction) will balance out over time", says the Government of Canada website.
Except that they won't. For purchases in the two-to-ten dollar range, where businesses frequently don't allow debit purchases, maybe (although microtransaction cards may mess that up, as well). And for people who pay bank fees on a per-transaction basis, maybe not. But people who have a debit card backed by an account with a high enough balance to escape fees will tend, if only marginally, to pay cash when rounding would be down, and pay by debit when rounding would be up. Not on every transaction, of course; but I would expect there to be a broad bias over large numbers of transactions against the merchant and in favour of the customer. $12.02 purchases will tend to be paid in cash, with values rounded down to $12.00, but $12.03 purchases will be paid in debit to avoid the rounding-up to $12.05.
The answer is reasonably obvious -- to have prices set so that they will be an even multiple of 5 after tax. This can be done easily enough if every item is purchased separately: in Ontario, with an HST of 13%, a 1.77 purchase is $2.00 plus a mill (rounded off) after tax. However, with an prime factor as the percentage multiplier, there will be an exact match only every $5.00, i.e. 65 cents in tax; which means that the tax payable will be slightly different depending on what combinations one buys in.
There is a real solution to this, of course, which is to have businesses post prices including tax as rounded values. This can be done with the HST, as it's not restricted by the constitutional limitations which require that provincial sales taxes be posted and visible, but it's currently not popular with businesses, which would much rather post a lower price and bump it up at the till. (Some stores, like the LCBO, post a blended price at rounded values. The LCBO is not going to have problems with this.) The abolition of the penny may be just the shove that's needed to get merchants to post the price you will pay rather than the price before tax -- because otherwise they will lose out, on average, over a large set of transactions.
