Economists says expanding GST would help poor
Published Friday, February 24, 2012 8:52PM EST
Top economists say expanding the GST to include items like books, medicine and food would boost revenue by $39 billion annually, and lead to better savings and services for Canada's poor.
Jack Mintz, of the University of Calgary's School of Public Policy, and Michael Smart, of the University of Toronto, say the federal government needs to overhaul its sales tax system.
Smart was commissioned by the School of Public Policy to write a report on the GST.
"Jack and I felt it was time to take a look at the way we designed the GST system, which is now in its 21st year," Smart told CTV's Power Play on Friday.
"Economists have always understood that the GST was not a perfectly designed tax when it came in," he added. "Now that more and more provinces are adopting the same base for their own provincial sales taxes, it's more and more important that we get that right."
Smart and Mintz looked at the basic numbers of how much revenue the GST was drawing, what portion of economic activity was not being taxed, and what other countries in the world were doing.
In a seeming paradox, they found that taxing the basic necessities of life -- like food and medicine -- could actually be beneficial to helping low-income Canadians.
By taxing more items, the government could then lower the overall GST rate without losing any revenue, and also fund social services and create income-tax breaks to help the poorest Canadians.
"It does tell you just how significant these exemptions are ... and also how unfair they are," Mintz said.
For example, the current food exemption is worth $8 billion. But the economists said that not applying the GST to food is actually an inefficient way to help the poor because it mostly benefits wealthy Canadians.
"Over a third of that value goes to people with families whose income is more than $100,000. So we exempt food to help low-income people, but it's a very costly way of doing it," said Mintz.
Calgary's public policy school commissioned Smart's report, which was released Friday.
Federal politicians have long struggled with the GST, even before it was enacted 21 years ago.
Former prime minister Brian Mulroney tried to soften the blow when he introduced the GST by exempting food. Jean Chretien's Liberals vowed to scrap the tax during the 1993 election, but never did.
Prime Minister Stephen Harper used Canadians' dislike of the tax to his political advantage, cutting it down to five per cent.
With files from The Canadian Press