Homespun comic character Charlie Farquharson (aka Don Harron) once quipped that the GST was short for “Got ya Second Time around.”
Canada’s hated goods and services tax is a five per cent levy on everything except groceries, education (tuition fees), non-profits, prescription drugs, medical devices such as glasses, residential rent and financial services.
The air we breathe was never considered. But last week, many Canadians were left breathless when two leading economists suggested the federal government expand the GST and eliminate current exemptions — including food.
Michael Smart of the University of Toronto and Jack Mintz, head of the University of Calgary’s School of Public Policy, said in a report that sweeping changes to GST exemptions could reap an additional $39 billion in revenue annually — a 60 per cent increase in what the tax rakes in now.
Commissioned by the School of Public Policy, the report said eliminating the exemptions makes good sense.
“I’m not saying it is politically easy to do these things, I’m saying it’s economically sensible,” Smart said.
But the uproar of Canadians commenting on the Internet said it was economic nonsense.
“They want to tax into poverty the lower- and middle-class person in this country,” one critic wrote. “Food is a necessity, they already tax you when you die, i.e. funerals. I guess they want to tax you from cradle to grave. Taxing food will put more people into food banks, that’s for sure.”
Smart and Mintz expressed concern that Canada’s poor would spend more on food. But the report also recommends taxing tuition fees, non-profits, medical costs and banking services.
The economists argue that eliminating GST exemptions would affect the rich the most, since they are now afforded the same exemptions as the poor. The food exemption, according to the study, is worth $8 billion. “Over a third of that value goes to people whose income is more than $100,000. So we (are now exempting food) to help low-income people, but it’s a very costly way of doing it,” said Mintz.
To offset the additional costs to the poor, the report says the federal government could increase its GST rebates to the lower income bracket.
But the cost of collecting and then refunding millions of dollars in GST to low-income Canadians will only grow.
According to recent statistics, Canadians earning $10,823 to $42,00 annually pay Revenue Canada an estimated 15 per cent of that income — not including provincial taxes. Those earning $42,000 to $85,413 are taxed 22 per cent federally. The average Canadian falls into the 22 per cent bracket, earning an annual single income of $46,550.
In addition, the average Canadian family carries debt of more than $100,000.
On the other hand, corporate income tax rates in Canada were set at 15 per cent on Jan. 1, 2012, the “lowest statutory tax rate on a new business investment in the Group of 7 (G7)”, according to Business Tax Canada.
“As a whole, there is a significant minority of Canadians who are on financially shaky ground . . . it’s a group we have to pay attention to,” says Katherine Scott, director of programs at Vanier Institute. That’s the group Smart and Mintz are forgetting.
And don’t forget the GST is applied immediately. Those strangled by a limited income need that money now, not every three months when the rebates would be paid.
It’s also disconcerting that the GST could be applied to students, as tuition fees and other costs associated with getting a post-secondary education continue to rise.
The economists argue that eliminating exemptions could ultimately lower the GST, fund social services and create income tax breaks to help the poorest Canadians. But that kind of outcome is up to government — and not necessarily dictated by logic.
So it seems more likely that we will be left with what Charlie Farquarson might label the GTT: “Got ya Third Time around.”
Rick Zemanek is an Advocate editor.