Contents               APRIL 1994

Editor's notes
April's solution: a real alternative to the GST
Media Archive invited to assist in monitoring South African election
Taking the pledge
Power to the people
An eye on the prize
Is Canadian health care a good model for others to follow?-- part II
Letters
April graph
April Table
States of confusion

Feature Article

April's Solution: a real alternative to the GST

by Michael Walker

Editor's notes

LATER THIS MONTH, THE Institute is hosting a significant two-day conference in Vancouver. Called "The Impact of the Underground Economy," its goal is to attempt to measure and quantify the size and scope of this segment of Canada's economy. On the first day, experts from Canada and around the world will look at what sectors make up the underground economy, how much of it involves contraband goods, and how other countries cope with similar situations.

On the second day, part of the discussion will centre on the impact that the underground economy has on government revenues, and questions whether we as Canadians have reached our taxation limit. One of the papers will suggest that the government implement more designated taxes as a way of coping with taxpayer resistance.

People interested in this conference will also want to read Michael Walker's feature article in this month's issue of Fraser Forum, "April's solution: an real alternative to the GST." It proposes a form of taxation that is applied only to individual spending (while excluding savings). The proposed tax is easier to administer than the GST, and, most importantly, lowers the taxation rate from the GST's present 7 percent. Michael Walker's proposal is of direct relevance to the underground economy question because with a lower tax rate, fewer people will find it in their interest to evade the tax. Fewer people avoiding the tax could, in turn, increase the government's take and help deal with the persistent deficit problem.

Please think about joining us for this critical and timely conference. Call us at (604) 688-0221 ext. 310 or (416) 363-6575 ext. 310 to find out more.

April's solution: a real alternative to the GST

Michael Walker      

This paper is a summary of invited evidence presented to the Standing Committee on Finance of the Parliament of Canada on March 1st and 9th, 1994, Ottawa, Ontario.-Note.

Introduction

THE FRASER INSTITUTE DID not oppose the installation of the Goods and Services Tax. It was, in our opinion, a superior alternative to the Manufacturers Sales Tax which it replaced. However, our support for the GST was conditional on it being absorbed into a general sales tax which would include the provincial sales tax, the base of which would have been harmonized with the federal sales tax. We also suggested that a tax limitation clause be included within the legislation for the GST, requiring a separate special Parliamentary debate before its rate could be increased. While neither of these conditions was really met, the GST is now in place, and rather than not support it because of the failure to meet these two conditions, we feel that less damage would be done by leaving the tax in place than by removing it because of these deficiencies.

Of course, one possible approach would be to indeed persuade the provinces to merge the GST and the PST into a National Sales Tax. Such a tax would have to be a value-added tax, like the GST, so as to avoid the taxation of productive inputs and to exempt exports. This National Sales Tax would eliminate the necessity of collecting PST and all of the costs associated with it. The federal government would carry the political burden of the tax, and the provincial governments would gain revenue from the broader base for the NST.

The transparency of such a replacement would probably make it politically unacceptable. In the remainder of this paper, we therefore propose a real alternative to the GST that would be more than cosmetically different from it.

info@fraserinstitute.ca You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.

If you know someone who would be interested in this web page, please enter their email address below, and we will forward this URL to them: Email Address:

Last Modified: Wednesday, October 20, 1999.