Tax food, Toronto economist advocates

Posted on March 23, 2012 in Governance Debates

Source: — Authors: – opinion/editorialopinion
Published On Thu Mar 01 2012.   By Carol Goar, Editorial Board

Two decades after its introduction, Canadians still resent the GST. They no longer take out their anger on store clerks and restaurant servers. But every time they pay the hefty tax — 13 per cent in Ontario, where it’s combined with the provincial sales tax — there’s a spark of irritation.

A few items are exempt: basic groceries, prescription drugs, rent, medical devices, health and dental services, child care, legal aid and financial services. That mitigates the ire.

Now Michael Smart, an economist at the University of Toronto, is proposing these exemptions be scrapped. He is backed by Jack Mintz, chair of the School of Public Policy at the University of Calgary, one of Stephen Harper’s most trusted advisers.

Smart released his paper, commissioned by the Calgary school, at a news conference on Parliament Hill. Mintz was by his side.

Both men argued that eliminating all GST exemptions would benefit the government and the public. “I’m not saying it’s politically easy,” Smart allowed. “I’m saying it’s economically sensible and I don’t think it’s impossible by any means.”

Mintz concurred. “Taxing food makes sense,” he said, daring any politician to refute his logic.

Here is the rationale put forward by Smart, who has taught at U of T for 17 years.

By charging a uniform value-added tax on everything, Ottawa would reap $39 billion annually, more than doubling the $32 billion produced by the current, inefficient, exemption-ridden GST/HST.

The government could use this revenue to reduce income taxes, improve social services, give low-income Canadians larger GST rebates or cut the consumption tax rate by 40 per cent. In addition, Smart pointed out, a pure VAT would give the economy a boost, make life easier for business and reduce tax evasion.

Politically, this proposal looks dead-on-arrival.

It would trigger a fierce backlash, uniting rich and poor, left and right, westerners and easterners, in protest. It would contradict everything Harper and his ministers have said about taxation: “We will not raise taxes on Canadian consumers and families” (2011 Conservative election platform). And it would cost the Tories millions of votes.

But before dismissing it entirely, consider the following:

• Four years ago with corporate pensions heading for insolvency and retirement savings hard hit by the global financial meltdown, there was a strong consensus that public pensions had to be strengthened. The provinces were on-board. So were workers, seniors and pension experts. Finance Minister Jim Flaherty seemed to be on-board, too.

Then he commissioned Mintz to take a second look. The Calgary economist saw no need for major reform. Shortly thereafter, Flaherty pulled the plug.

• Sixteen years ago Mintz urged then-finance minister Paul Martin to reduce corporate taxes. Politically, the idea seemed unthinkable. Four years later, Martin did it. And Flaherty kept doing it. Today, Canada has one of the lowest corporate tax rates in the industrial world.

• Finally, there’s Harper’s background. The University of Calgary, home of the 3-year-old School of Public Policy, is his alma mater. He earned two economics degrees and lectured there. The logic of tax simplification would appeal to him.

Superficially, it is appealing.

Ottawa could use the $39 billion gained by implementing a pure value-added tax to improve the poor. But would Harper use the windfall that way?

Bolstering social programs would be antithetical to everything he has said and done since taking office. Reducing income taxes might tempt him, but it wouldn’t do the poor much good — most don’t pay income taxes. Likewise, he might be willing to increase GST rebates, but they are sent out quarterly. Families buy food weekly.

As an economic theory, Smart’s scheme may be defensible.

But outside the safety of academe, it is a prescription for more hardship and more hunger.

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