Canadian Government Urged To Rethink GST Cut Proposal

by Mike Godfrey, Tax-News.com, Washington

11 December 2006

A parliamentary committee has urged Canada's Conservative government to rethink its decision to cut the goods and services tax, arguing that the measure would be too expensive in terms of revenue loss.

The House of Commons Finance Committee recommendation was one of 43 made in the pre-budget report for 2006, entitled 'Canada: Competing to Win'.

The report reflects the testimony received by the Committee from more than 400 groups and individuals, and was presented in parliament last week.

"The Committee believes that the proposed reduction in the Goods and Services Tax rate to 5% should not occur," the report stated, adding that the fiscal cost of the measure would "unduly restrict other decisions that could be taken by the federal government".

A 2% cut in GST was a key electoral pledge of the Conservative Party during last winter's election campaign. So far, the government has cut the rate by 1% to 6%, but it intends to knock off another percentage point within the next five years.

According to the Conservatives' election campaign, the amount of GST taken from Canadians had doubled, from C$15.9 billion (US$13.7 billion) to C$31.8 billion while former Prime Minister Paul Martin's Liberal government was in power, exceeding inflation and outstripping growth in earnings.

However, the committee report pointed to OECD findings which suggest that indirect taxes such as GST are generally fairer and more efficient at raising revenue than direct taxes.

The committee also recommended that the federal government complete a comprehensive review of capital cost allowance rates in Canada by 30 June 2007, with a view to determining the extent to which similar asset classes are treated equitably, Canadian rates are comparable with those in other countries, and rates reflect the useful life of assets.

“I am confident that the implementation of the recommendations contained in our report would put Canada on the path to the productivity growth and competitiveness that are needed for our future," commented Brian Pallister MP, Chair of the Committee.

In a brief statement, Finance Minister Jim Flaherty thanked the Committee for its work on the report, which he noted was consistent with the federal government's new economic plan, 'Advantage Canada'.

"I will consider its recommendations as I prepare our next budget," said Flaherty.

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