Economists propose GST on food

[grammafreddy]

http://www.castanet.net/news/Canada/714 ... ST-on-food

Economists propose GST on food
by The Canadian Press - Story: 71476
Feb 24, 2012 / 9:30 am

OTTAWA - Two of Canada's leading economists want Ottawa to reopen one of the hottest issues of the last two decades by expanding the GST to include food in grocery stores.

The two economists - Michael Smart of the University of Toronto and Jack Mintz, head of the School of Public Policy at the University of Calgary - say the way Canadian governments collect sales taxes is among the most inefficient in the advanced world.

By eliminating the exemptions such as medicines, books, financial services, tuition and especially food, governments could reap an additional $39 billion in revenue annually - about 60 per cent more than they do now.

That cash bonanza could be used to cut income taxes, fund social services, or both, or even to reduce by about 40 per cent the 12 to 15 per cent rates Canadians pay in harmonized sales taxes in most provinces.

Taking Ontario as an example, broadening the HST to treat all goods and services equally would make it possible to reduce the rate from 13 per cent to 8.5 per cent and still generate the same revenue, Smart says.

The challenge is the politics of the proposal, which even the economists admit would test the bravest of politicians.

"I'm not saying it is politically easy to do these things, I'm saying it's economically sensible," Smart said at a news conference Friday.

It's mission improbable, not impossible, agreed Mintz. He recalls that he started talking to then-finance minister Paul Martin in 1996 about the need to cut Canada's high corporate tax rate - also unpopular - and 16 years later, the country now has among the lowest rates in the G7.

"I think all these things are manageable," he said. "Tax reform takes time, but I think we can have significant GST reform over the next four or five years."

Smart and Mintz said they were sympathetic to the argument that poorer Canadians spend more as a portion of income on food, but that challenge is best solved by increasing the GST tax refund benefit specifically to those who need it. The problem with excluding food from sales taxes is that higher income Canadians also get a subsidy.

"I'd like to hear any politician try to defend that. I think it's indefensible," Mintz said, who added he had spoken about the matter to Finance Minister Jim Flaherty. He did not say what response he received.

The conclusions on the effectiveness of Canada's consumption taxes stem from a paper Smart delivered to a convention in Calgary last fall and was reissued, with some modifications, at an Ottawa news conference.

The debate over taxing food arose more than 20 years ago when former prime minister Brian Mulroney first proposed creating a federal sales tax on goods and services. Although the initial proposal had called for groceries to be included, the government so feared a backlash that it backed off even though it meant a higher setting for the GST.

In the 1993 federal election campaign, former Liberal prime minister Jean Chretien promised to repeal the tax and later was assailed by critics when his government never did.

The Harper government has seen political advantage in promising and delivering a two-point cut to the GST to five per cent.

"There is some evidence that taxpayers respond negatively to highly visible sales taxes on day-to-day purchases like groceries," is the way Smart describes the phenomenon in his paper.

The OECD (Organization for Economic Co-operation and Development) ranks Canada's GST relatively highly for efficiency, but Smart says the international body has it wrong. It credits the GST with all the tax generation, whereas now provincial consumption taxes bring in more revenue.

"In reality, Canada's VAT (value-added tax) is riddled with exemptions, rebates and reduced ratings that seriously damage its effectiveness," his report states.

"This paper makes the case for an ideal VAT. Taxing consumer commodities at a single rate reduces opportunities for tax evasion, keeps revenues steady and drastically simplifies compliances for businesses."

The economists say value added taxes, or consumption taxes, are preferable to other forms of taxation, and making Canada's VAT more efficient would help the economy.

The food exemption costs the economy about $1 billion through loss of efficiency and compliance costs, the paper calculates. In essence, Smart says, Canadians wind up buying too much discretionary food and too much prepared foods because they are tax free, calculating a 10 per cent increase in the cost of food would cut consumption by two per cent.

Smart says only three countries exempt food form VAT taxes as completely as Canada, although in many it is hidden.

Aside from food, other exemptions cited by the paper includes financial services, residential rent, education, non-profits, prescription drugs and medical devices such as glasses , municipal services and small traders and other businesses. As well, new housing has rebates on values under $350,000.
The Canadian Press

[Captain Awesome]

Well, that's a terrible idea.

[Logitack]

yeah, and if you believe the feds will lower taxes if they put gst/hst on groceries because the amount collected would bring in 39 billion is hilarious. if you believe that, i have some swamp land and a bridge i have for sale, cheap.

[NAB]

I dunno yet. This sorta fits a lot of my antagonism with repect to my opposition to the BC HST and what a dog's breakfast of exemptions and exclusions it became. And certainly in provinces with PST, particularly BC, they would do well to acknowledge the long list of complaints from the business sector about the dog's breakfast that had become too. VAT (HST) should be just that and all inclusive IMO, i.e. the "proper" VAT and related broader tax reform that I and many Anti-BC HST folk have been calling for all along. That should result in an overall lower VAT rate across the board and fewer separate taxes and didled fees (BC Carbon Tax gone in the process for example) and distribute the taxes more fairly based on user pay. Just the same, if these calculations are correct and the federal government tries to sell that idea and implement it, extracting an additional 40 billion a year out of the Canadian economy is not going to be an easy sell. I suspect any consumer reaction will be mild compared to the reaction of provincial governments, particularly BC, Quebec, and the Merry Times > particularly NFLD and LAB. Ontario on the other hand might see some potential economic salvation in this, and since they have no Provincial Sales Tax it probably won't matter much to most Albertan's.

Nab

[Al Czervic]

I say no way the Conservatvies or ANY political party are going to put GST on groceries. I do not see it occuring.

[RR24K]

I say no way the Conservatvies or ANY political party are going to put GST on groceries. I do not see it occuring.

I agree with you Al, this would be politilical suicide. (fast food & junk food, Okay if it not already)

[Popeye69]

Well the Liberals wont touch this with a 1000 foot pole. In fact after what BC went thru anyone who wants to effectively end their political career would touch this topic.
I hope that University has good web protection and security because I think they can probably look forward to alot of harrassment and cyber attacks on their stuff for even suggesting such a stupid idea. Put GST on *rent and groceries are you absolutely kidding me???

** Rent was said was GST exempt but was another potential revenue source not taxed. CBC news.

[NAB]

If BC had done something like that (perhaps just exempted basic food and CLOTH diapers), scrapped the carbon tax and regional transit taxes on gasoline and done HST province wide on it instead, closed a lot of the ludicrous income tax loopholes for business and the high income set, set the provincial portion of BC HST at around 3 or 4 % (total HST 8 or 9 %) and not got involved in all the special interest demands and diddles for political reasons, I (and probably most of the entire anti HST crowd) probably would have fully supported it right from the start and we wouldn't be where we are now, including not having to pay back a billion dollar loan from the feds.. Much more simple and efficient for all concerned. Low income would be looked after as they are now with income level related quarterly rebates on only one tax, not two like now due to having to administer the carbon tax - which essentially creates bureaucratic and many businesses admin costs that replaced those of the PST so were really no further ahead in that regard.

Seems to me that no matter what the issue over the years, Victoria and its bureaucrats seem totally dedicated to overly complicating everything. BS baffles brains in their view I guess. Personally, I prefer the KISS principle, but then under that regime its not so easy to confound and confuse the electorate and would be investors, and hide government and business diddles and tax evasion in the process.

Edit: What's more, had it been done that way, Gordon Campbell might still be the Premier of BC, and Christy Clark would still be an obscure radio call in show host, ....or maybe not even that any more as she would be out of material to script and talk about.

Nab

[steelrules]

Nothing that is essential to life like health care food & medicine should ever be taxed, only things that a person has a choice in buying should be taxed.

[NAB]

Nothing that is essential to life like health care food & medicine should ever be taxed, only things that a person has a choice in buying should be taxed.

LOL, governments would probably quickly go broke under that philosophy.

Nab

[steelrules]

Nothing that is essential to life like health care food & medicine should ever be taxed, only things that a person has a choice in buying should be taxed.

LOL, governments would probably quickly go broke under that philosophy.

Nab

Really? last I checked that's the system we have now,and when I say food I mean groceries not drive thru.

http://www.cra-arc.gc.ca/E/pub/gr/news57/news57-e.pdf

[NAB]

Nothing that is essential to life like health care food & medicine should ever be taxed, only things that a person has a choice in buying should be taxed.

LOL, governments would probably quickly go broke under that philosophy.

Nab

Really? last I checked that's the system we have now,and when I say food I mean groceries not drive thru.

Oh, sorry, I thought you were perhaps eliminating things like income and business taxes, road tolls, bridge tolls, taxes on basic utilities, siphoning off monopolistic utilities and crown corp "profits", etc etc etc too.

Nab

[Dave_1963]

I saw this story earlier today on Castanet. The first version I read proposed tax on all food as well as rent. The tax on rent is not mentioned in the version Gramma posted. Any government that would even consider taxing basic food or rent would be committing political suicide.

[wthwyt]

Any politician who would agree to vote "YES" to this should be tared & feathered. The economists that thought this is good idea is an idiot.

[grammafreddy]

To be fair, these are economists ... they don't concern themselves with trivial things like people and their incomes or hardships. They only fuss about numbers and crunching them, finding ways to make/save money and balancing budgets. This study wasn't about whether the people would like this or could pay it, only about how the government could realize more income and who to stick it to.