Economists Promote GST on Food, Other Exempted Items

Worth A Look, Taxation, Frontier Centre

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 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 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 to 8.5 per cent from 13 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 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."