cktimes.ca Archives for At Issue
At Issue
The GST Still Rears Its Ugly Head
Tuesday, February 11, 2003
Finance Minister John Manley has set Feb. 18th as budget day. It'll be his first as finance minister after serving in various cabinet posts in the Chretien government. I'll find it intriguing to see what Manley does with his first kick at the budget can. He's going to be running for the Liberal leadership. That, combined with a projected $10 billion surplus, should lead to some policy initiatives with a solid Manley stamp.Putting Iraq aside for the moment, the Chretien government once again finds itself awash in our cash. It's been a difficult adjustment for the Liberals. It is the political nature of the Liberal party to nurture a mixed economy. This is where government spends money to create economic stimulus. In the past, both the Mulroney and Trudeau administrations enacted this type of economic management leading to huge budget deficits. So when Chretien found himself with super low interest rates, a buoyant Canadian economy and budget surpluses, is almost seemed like he was embarrassed. In the old days, they'd spend it as fast as it came in.
But we all know the Liberals found the free trade, GST religion they so loathed in their earlier incarnation as an opposition party during the Mulroney years. In many ways they have acted out what the previous Mulroney administration talked about but could never do. The federal debt has actually decreased over the last several fiscal years. You can bet as this year draws older, Chretien will take a lot of credit for that.
One of the biggest contradictions of the Chretien government has been its love affair with the GST. The GST replaced the old federal sales tax. At the time, the Mulroney government thought the old tax to be inefficient and a drag on exports. When they brought it in, Canada revolted. Some Tory backbenchers called it the "gouge and screw" tax. It was so comprehensive, Canadians had to get used to paying tax on a haircut and a stamp. As a tax, it was definitely one of a kind.
At the time, I had just graduated with a Master's Degree in Agricultural Economics and Business from the University of Guelph. I was named Chairman of a finance committee of a provincial agricultural organization. For my first meeting, I was led into a room full of finance department officials. They were there to explain the proposed new goods and services tax. Back then, it was marketed as a good thing for Canadians, even a vehicle to reduce the cost of living.
The problem was something happened on the way to tax heaven. The GST created a bureaucracy of paper work which Canadians still struggle with today. The increased tax revenue from the GST over the outdated manufacturer's sales tax never materialized as a lot of money went under ground. With tax seemingly turning up everywhere, Canadians did anything they could to avoid it.
Jean Chretien, then Opposition leader, promised to "scrap the GST" after the 1993 election. But shazam, when he got into office, he decided against that. It caused much angst in the Liberal party as Sheila Copps resigned her seat over the issue and John Nunziata was fired for voting against the Liberal budget. Sheila Copps ran in a by-election created by her resignation. In the never, never land of Ottawa, she was re-elected, exorcised from the guilt over the GST. After that, the GST more or less became part of the Canadian landscape.
Unfortunately for the government, this past week, the GST raised its ugly head once again. CBC News exposed how two men have been charged in British Columbia with falsifying $250-million in lumber exports — using as many as 20 fake companies — in order to claim millions in fraudulent GST credits. The amount of the fraud involved $22 million. Even after the auditor general warned of this in 1999, the GST rebate cheques continued. The cheques were cashed and in some cases, bags full of money were leaving a popular British Columbia credit union. Elinor Caplin, the federal revenue minister, tried to defend the indefensible by saying it was before the courts.
The epic history of the GST could have been different if it wasn't for a policy mistake made by the Mulroney government. They decided that the GST would be "visible" unlike other countries like Australia and Singapore where the tax is hidden. They thought it only fair that Canadians know how much tax they were paying. So to this day, Canadians swear under their breath every time they buy something. That blankety, blank, GST shows up every time. Meanwhile in places like Australia and Singapore the GST is embedded in the price of the good. Everybody has forgotten about it.
So it's hard to feel sorry for Elinor Caplin and Jean Chretien on the GST scandal of the past week. The least finance minister Manley could do is reduce it a few percentage points come February 18th. We'll see. I just keep hearing Brian Mulroney laughing in the background.
Philip Shaw, farms 830 acres near Dresden, Ontario. He holds a Masters of Agricultural Economics and Business Degree from the University of Guelph and is a well-known commentator on agricultural issues in print, on radio and over satellite in Canada and the United States. In the Chatham-Kent Times, Phil will use his frank and forthright writing style to address political and economic issues from the local to the international stage. He is a keen observer of political life at all levels, reads widely and has travelled the world to gather fodder for his column. See what's At Issue this week.
