The federal government of Canada is currently weighing the potential of increasing the Goods and Services Tax (GST) as a strategy to manage the national debt while financing upcoming expenditures. A coalition of prominent financial and business leaders is advocating for this idea in light of expected rising costs ahead of the November federal budget presentation. Prime Minister Carney’s Liberal government is gearing up to unveil the budget on November 4, which is projected to include significant spending commitments amidst challenges stemming from the ongoing trade war.
Overview of GST and Economic Considerations
The Business Council of Canada released its 2025 budget consultations report, highlighting various fiscal policy insights from a survey of 50 chief executives and 20 economists, investors, and former senior officials conducted between August 4 and September 24. While opinions were split on the immediate necessity of raising government revenue, there was a clear consensus that increasing the GST would be the most effective approach.
Impact on Households and Businesses
Raising the GST could exacerbate financial strain on households already facing affordability issues. Small and medium-sized businesses may also suffer as consumers would have less disposable income to spend. Dan Kelly, president of the Canadian Federation of Independent Business, expressed concern that a GST hike could swiftly harm small enterprises by reducing consumer purchasing power.
- The current GST rate stands at 5%.
- For example, an item priced at $100 would incur an additional $5 in federal sales tax.
- In provinces like Alberta, there is no provincial tax on top of the GST.
- In British Columbia, a combined sales tax of 12% applies, including the 5% GST.
Historical Context of GST Changes
The GST has been altered in the past, notably by former Prime Minister Stephen Harper, who reduced the rate from 7% to 6% in 2006, and then to 5% in 2008, where it has remained since. An increase in the GST would likely lead to immediate increases in costs for everyday items and services, intensifying challenges for consumers.
Projected Deficits and Government Spending
Recent projections by the parliamentary budget officer indicate an anticipated deficit of $68.5 billion for the current fiscal year, up from $51.7 billion last year. These figures do not account for potential increases in defense spending to meet NATO obligations. In response to inquiries about a possible GST increase, the office of Finance Minister François-Philippe Champagne has remained non-committal, emphasizing the government’s focus on ambitious investments and rigorous savings.
Political Implications of GST Increase
A GST increase could offer a significant revenue source for the federal government, but it poses substantial political risks. According to Kelly, tax increases can be highly controversial and visible, leading to swift public backlash. The government must assess public tolerance before considering such moves, particularly as inflation and stagnant consumer incomes have recently heightened economic pressures.
As Ottawa prepares for budget discussions, the focus on GST as a tool for managing spending and the deficit remains a contentious and crucial aspect of the economic landscape in Canada.
