Broadening the GST may make sense, but it will never sell

Two of Canada’s leading economists are advocating for the federal government to start charging GST on groceries. It seems like an outrageous proposition, until you peel back the headline to discover that ending the GST exemption on groceries, along with medicines, books, tuition, financial services and even rent, would generate enough revenue to allow an overall cut to the GST. In Alberta, the GST rate would fall to three per cent from five. Ontario, which has a blended, or harmonized, provincial and federal tax, would see its rate drop from 13 per cent to 8.5 per cent.

As an economic model, it might make sense. Dropping the exemptions would make for a more efficient tax system while allowing governments to reap an additional $ 39- billion in revenue annually — about 60 per cent more than they do now.

That additional revenue could be used to cut the overall GST rate, or reduce personal income tax, or pay for social programs, or some combination of all three. And there could be spending stimulus benefits to the economy.

Michael Smart of the University of Toronto and Jack Mintz, head of the School of Public Policy at the University of Calgary, have come up with this daring analysis as a way of modernizing what they argue is an inefficient tax system.

There’s just one problem, especially when it comes to GST being charged at the grocery store checkout — everybody needs food, but you can do without a 54- inch flatscreen TV.

Smart and Mintz say this can be alleviated by increasing the GST rebate for lower- income Canadians. That’s fine, but what about the beleaguered middle- class who don’t qualify? Have you seen how much a teenager eats these days?

A person can always buy a used car, or purchase one that is more fuel- efficient. The latest kitchen gadget can wait until next year. You can get by with that slow, outdated computer. But the grocery bill is unrelenting. Food literally goes in one end and out the other.

“There is some evidence that taxpayers respond negatively to highly visible sales taxes on day- to- day purchases like groceries,” the economists admit. Yet the advantages, they argue, are many.

“Taxing consumer commodities at a single rate reduces opportunities for tax evasion, keeps revenues steady and drastically simplifies compliances for businesses.”

For politicians, taxing food is an electoral suicide mission.

When the GST was first proposed 20 years ago by the Mulroney government, groceries were exempted out of fear of public backlash. That’s why governing is called politics and not economics.

The cold, hard facts may make sense, but they don’t sell at the ballot box.