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A 10 per cent GST ... and that's just the beginning folks...

By Walter Robinson
web posted September 23, 2002

The goods and services tax (GST), pollsters tell us, is the most hated tax in recent Canadian history. Yet the pollsters also tell us that Canadians would be willing to pay more taxes for health care and Kyoto commitments. Herein lies the reason why Canadians should not dismiss the rumours of a hike in the GST (going from its present 7 per cent to 10 per cent) in the near future.

According to the December 2001 budget documents, the GST presently nets Ottawa some $27.1 billion. So do the math, divide by seven, carry the one and count on your big toe and voila, with each percentage point of the GST, Ottawa rakes in $3.87 billion.

Following along, a 3 per cent hike would mean an extra $11.61 billion in additional revenues for Ottawa. This would definitely be enough for Ottawa to respond to demands for federal cash infusions for health care – expected from both the Kirby Senate Committee (late October) and the Romanow Commission (mid- to late November).

Billions of tax dollars would also be left over to fund Kyoto transition commitments, the cities agenda, aboriginal initiatives and a host of other 'social engineering' schemes expected in the Throne Speech on September 30.

There are five major reasons why Canadians should be concerned.

1) This could be more than a trial balloon. It is a certainty that both the Kirby and Romanow health care commissions will demand that Ottawa play a larger funding role in health care. And we've already seen that the federal government is not prepared to re-allocate within existing budget envelopes (ex: cut corporate welfare and regional development by $4 billion) to meet such demands. Combine this with the TD Bank's recent forecasts showing Ottawa will run little to no surplus and it's clear that tax hikes are definitely being considered to meet a variety of health care, Kyoto and as yet unknown Throne Speech promises.

2) 10 per cent is the first political option for the feds. Moving to an 8 per cent GST doesn't yield enough revenue. Nine percent is a non-starter given the Liberals opposition to this amount back in 1989 and 1990. And Ottawa knows they will take some heat over increasing the GST regardless of the amount, so why limit it to just one percentage point? The political price tag would be the same for 10 per cent as it would be for 8 per cent.

3) Successfully hiking the GST sets a dangerous precedent. If the government can successfully hike the GST under the pretense of funding healthcare, then look out. How about another 1 per cent for the cities agenda, .8 per cent for aboriginal funding priorities, 2 per cent for the innovation agenda … and on and on it goes.

Not only would the price of goods and services be higher due to the tax hike, but businesses would also pass along the costs of compliance (changing billing systems, registers, etc.) to consumers in the form of higher prices or diminished service offerings.

4) It could create space for provincial sales tax hikes. A 10 per cent GST then allows provinces with single digit sales taxes to raise their own sales tax rates close to 10 per cent. And we've already seen health care premiums skyrocket in Alberta and BC under the cover of protecting health care.

5) There is no guarantee any GST proceeds will go to health care. Time and time again, Ottawa has refused to dedicate gas taxes back to road and highway construction citing an aversion to dedicated taxation. It's improbable that the federal government would change its tune when it comes the GST and health care funding. Welcome to the world of green peas and alfalfa sprouts taxation – think the flying tax or the EI ripoff …. you may not like it, but mom (read: the government) says its good for you.

Walter Robinson is the federal director of the Canadian Taxpayer's Association.

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