With Governments around the world running large deficits, it makes sense that taxes will be hiked at some point in the future. This column in The Globe and Mail speculates what form the taxes hikes might take:

  1. Change the capital gains inclusion rate. Recall that while the rate is currently 50%, it used to be 75% not so long ago.
  2. Increase corporate tax rates.
  3. Create a new tax rate for high-income earners.
  4. Bump up the GST.

It may be political suicide but bumping up the GST would get my vote. Increasing the GST rate by another 2% would add about $12 billion to the Federal coffers but such a move is likely to encounter angry opposition, especially at a time when Ontario and British Columbia are also harmonizing the provincial sales tax with the GST.

This article has 53 comments

  1. bump up the gst. they should never have cut it in the first place.

  2. Isn’t the solution to deficits usually burrowing more and pushing the debt back for future generations to deal with?

    I personally support hiking the GST. Consumption taxes are the way to go.

  3. Philip in North York

    I fully support GST rate rollback. The cut was waste of money from the start.

    By the way, Doesn’t it mean increase rather than
    “2. Decrease coporate…”.

  4. increase in GST and tax harmonization? yeah that would definitely give me more incentive to find more ways to avoid taxes.

  5. I would go futher and raise the GST to 10%, gradually raising it more over the years and reduce income and corporate taxes….consumption should be taxed, not production…

  6. Agreed, the GST should have never been cut. Raise it back to 7%

    They should have lowered income tax, but now that doesn’t look like it could happen any time soon, either.

  7. Between property tax increases this year, around 25% in my city for 2009, HST etc. and no increase in income I will soon be taxed out of house and home…

    I do agree with consumption taxes though rather than flat income tax increases.

    My other wild and crazy idea is more lottery based endeavors like the home lotteries. How about giving me a chance to win something? Heck, open more casinos.

  8. I’m personally a big proponent of GST/PST harmonization, contrary to some of the other commenters . It’s a much more efficient means of taxation, and if the gov’t needs to raise $X, then I’d rather they do it in the way that limits economic activity the least. The fact that provinces are starting to do it despite its massive unpopularity on main street goes to show how economically compelling it is.

    @ Adam – I’m not sure governments actually make money on lotteries and gaming, when all the social problems they cause are taken into account.

  9. Even though we all agree that the GST should be raised, it seems unlikely that the current parliament would change its ideological stripes and reinflate the GST.

    The capital gain rate going back up, while continuing to pledge support for middle class investors through the TFSA, might be the most politically prudent move.

  10. Why is the solution always to raise taxes?

    The first priority for the government should be looking at the workforce and any redundancies. If corporations need to trim now and then to stay effective so should the government. Reducing the fat from additional workers, perks and so on would have a much heathier effect (i.e no cuts to programs, no inefficient transfer of weath via taxation.)

  11. I’m part of a small minority of British Columbians who actually support the HST. (How the provincial government gone about introducing it, well, that’s another story.) My first pick to the fight federal deficit is to the return the GST to 7%. It was foolish to cut it in the first place.

  12. I need an explanation of the reasoning behind raising the GST. My wife and I were making a considerable amount of money until early this year. We lived well below our means (luckily)and have been investing and dropping any spare cash to pay down the mortgage. We had an emergency fund as well. Disaster struck as we both lost our jobs. I have returned to work making much less than I was, and my wife is not eligible for EI as she was on mat leave when she was laid off. I can’t afford to feed my family and yet most of you believe GST is a consumption tax? I disagree. With harmonization it’s even worse. I am charged a consumption tax on basic necessities for my children. We don’t have cable, we have one 5yr old car (I now work more than 50 km from home), but do have internet (probably the only luxury).

    Why don’t we start fighting the deficit/debt by disbanding eHealth (Ontario) and having the money that was stolen from us returned (there are many other examples like this). Also, have you set foot in a school lately? Support staff (like custodians) are greatly underworked. It’s a travesty.

    As Shank has mentioned, the government(s) should be trimming their fat, which is more bloated than any corporation.

  13. Don’t raise any tax, for it would make us poorer. Cut government spending instead.

  14. @Sapphire- I think the main idea behind raising the consumption tax is that those who can afford to spend, can also afford to contribute a little more tax.

    If the GST were raised, yes, you would pay a little more tax, but not nearly as much compared to someone who is eating out every day, buying a new car and plasma screen TV, etc.

    While I agree that the GST should never have been cut in the first place, one big argument against an increase is the effect it will have on consumer purchases. If people aren’t buying new cars today, an extra 2% tax isn’t likely to help. Although, now that I’ve written that, maybe the government should announce an increase in GST effective Jan 1. It might convince people not to delay making those big purchases.

  15. Canadian Capitalist

    @Shank, @sapphire: Fair enough. Increasing taxes alone would not get us out of deficit. A 2% GST hike would net $12 billion and there would still be a deficit. Unfortunately, there is no political support for cutting public sector fat. Look at the supposedly conservative Federal Government. This Govt. has gone on a massive spending spree and increased the size of the government significantly.

    Back when the government was posting massive surpluses asking to cut taxes was the right move. We got some of that but we also got significant spending increases. Today, it seems to me that without tax hikes, we’ll be running deficits for a long time.

    This is not to say that there is no wastage in Government. Of course there is — lots of it. And cutting that fat should also be an option on the table.

  16. If the government operates at a deficit, it’s not for lack of revenues. Rather, it’s clearly because it spends way too much.

  17. Casinos.

    The philosophical debate about it creating problems is just that, philosophical. Not conclusive.

    Take a minute and read this article if you don’t believe in the potential of casinos for debt reduction.

    http://www.bclocalnews.com/surrey_area/langleytimes/community/City_of_Langley_is_now_debt-free.html

  18. My understanding is that if the GST is increased, so would the GST credit for low-income Canadians. When I was a poor student, I remember getting government cheques that effectively reimbursed the tax I was paying at the check-out.

  19. I’m with Martin. Cut program spending. By a LOT. Of course I am a capitalist and libertarian at heart, so that’s pretty much my solution to most government finance problems. Less government good, more government bad.

  20. I still don’t understand why people get GST cheques…when I received them while in university, along with my friends, we would just buy beer. And we could have used that money for something better, such as food. So I wonder, do those less fortunate see it as a windfall, or do they put it to good use? I often found that people with less money are more often than not the worst spenders and make bad choices with their money.

  21. Kind of sad that Martin is the only one so far advocating spending cuts.

  22. I dont agree with raising taxes, I am being taxed enough as it is, and I even want my income tax to be lowered.

    My main reasoning of why I dont feel like getting taxed more is simple: GOVERMENT WASTE MONEY. Rather than giving my money for them to waste, I rather keep it to myself for savings and “waste” it my own way.

    I agree with paying my fair share of taxes for public services, but considering the eHealth fiasco and the way government officials keep wasting taxpayer money, I definitely dont want to give them more money to waste. Do they really need to spend tens of thousands of dollars for a meal?

    Government really should be run like a for-profit public companies, if government officials are abusing money, they should be fired. They should be transparency on their spending and they should be held accountable for their actions. I am not talking about companies trying to make profit shamelessly, I am just talking about running government in an efficient and responsible manner. But then again, this is just a dream.

  23. @Steve probably because the government doesn’t cut funding in the right places. They’ll cut funding to things that we won’t see the immediate effects of like education or infrastructure and let them deteriorate to the point of collapse. They would never lay people off or freeze pay increases.

  24. While program spending has increased far faster than inflation under this government, you’re not going to make a significant amount of headway in the deficit simply by cutting spending. While that is certainly part of the solution, many a politician has campaigned on the idea of cutting fat before seeing the books and realizing that there is very little “fat” to be cut. If you go too far you end up doing what Harris did – i.e. incurring massive deficits.

    Federal departments are currently undergoing reviews to maximize their efficiency in terms of spending. In real terms, this means budgets are being cut. Each department is subject to a variety of accountability measures. If it makes you feel better to pretend they’re misappropriating your money left and right, that’s great, but it just ain’t so.

    I won’t bother getting sucked into the “governments waste money, I can spend it better” debate. I’d just ask any who hold this view to pick up an introductory economics textbook and brush up on “public goods.” Maybe then you can tell me how much national defence, roads, etc. would work under a pure user pay model. If you don’t like the current state of affairs, either run for office or emigrate to the Bahamas like Eugene Melnyk. Otherwise it’s just hot air.

  25. The government has shown time and time again that it is a poor steward of our hard-earned money, so the last thing we need now is entrusting it with a larger confiscation of our annual incomes. The government is currently too big as it is; it would be just damn foolish to inflate it some more. It’s high time our overweight government goes on a diet.

    If one thing, the fattening deficit simply shows that the federal government took on too much new so-called responsibilities during the most recent economic expansion. In short, increasing taxes now would be equivalent to rewarding the poor stewardship practiced by the clowns sitting at the House of Commons.

  26. I’m still with Martin. There is way too much waste in Government. The entire Senate is filled with political appointees (ie. not elected) in cushy jobs making good money and with huge expense accounts and huge budgets for studies which are rarely read and never followed. How much money can we save by completely abolishing the Senate? I am guessing the total cost of operating the Senate would surprise most Canadian taxpayers. What function does the Senate perform that can’t be performed by Parliamentarians – just take a look at all of the back benchers! Why can’t they perform these functions of the Senate?

    The Governor General’s office is purely a figurehead position. For a primarily symbolic position, does that office really need to have such massive expense accounts and budgets? Even Parliamentarians, as demonstrated in fairly recent scandals, have been abusing their expense accounts!!! Rick Mercer has great segments about how there is a free Massage Therapy clinic located on Parliament Hill for public servants to get massages while at work and many other crazy examples of perks available to public servants which are not available to most taxpayers.

    Most Government policy and paperwork is much more complicated than it needs to be. It has come to the point that only lawyers can understand the language and huge numbers of bureaucrats are required to administer these problems because they’ve made them so complicated…

    I just recently attended a joint presentation by Service Canada and Employment Ontario where they talked about dozens of government programs whose benefit is in such narrow focus that only people who are exactly 5’4″-1/2 with one blue eye and is turning 24 yrs of age on September 8th can qualify for… Some of the programs are so confusing and narrow that even the government representatives there didn’t know the details about – they need to call in another department of “specialists” who do nothing but administer those specific programs (again, which nobody qualifies for) in order to find out about them. There is also a lot of seemingly duplication of function between the Federal and Provincial governments in some of these program areas yet a lot of people are still falling between the cracks despite the overlap.

    I personally have no idea why most Canadians feel like they must have Government involved in every aspect of their lives. Next thing you know, we will need a civil servant to wipe our bums when we’re done on the potty.

  27. Boy, we have a lot of people in the “lighten government” camp. Sure, there’s a lot of waste in government. But there’s an awful lot of waste in the private sector as well. The government in my opinion is about equally poor steward as individuals are (in their spending and investment choices) and many corporations. As someone well into the top income tax bracket, I think our income tax is about right.

  28. I won’t keep droning on and on with specific examples where I think the government can cut wasteful spending. My main concern is that there is no “culture” of cost cutting and accountability in our government. It is all about pork-barrel spending and a use-it-or-lose-it attitude for budgets and program spending.
    Some large corporations are finally “getting it” in terms of making their operations more lean. The government is the slowest of the slow in this regard and in fact, I don’t even think they feel the need. The problem is that there is no competition in government and we just have to bend over and take it like a taxpayer.

  29. @Al R: If you read my post carefully, I did mention I agree with paying my fair share of taxes for “public goods” as you put it. What I dont agree with is the way government officials waste money on lavish and unnecessary spending for their own good (not the public), their total disregard on understanding “competitiveness” (ie. contract needs to be tender out for bids to anyone who can give the BEST AND CHEAPEST offer – which definitely hasnt happend with eHealth and I bet a lot of other things done by government), and dont even get me started with unions

  30. @Al R. Even current program spending has a lot of waste. I know I just said that I won’t drone on and on about specific examples, but…

    What if our military spent their procurement dollars on buying hardware built here in Canada by Canadians, instead of buying pretty much everything overseas? Maybe that would lessen the billions they spend on subsidies and economic stimulus packages that other departments inefficiently administer. The government doesn’t think “out of the box” in this way.

    Why are we paving over the most fertile, arable land in Canada (and in fact the world) to build roads and malls in massive urban sprawls when we chase people out of the downtown core? This is wasteful use of arable land at a day and age when wars are fought and people are killed all around the world over the shrinking availability of arable land. Why not avoid taxing the downtown core to death and encourage more people to live in the city, avoiding the need to pave over our best farmland and our aquifers in the first place? This is the sort of out-of-the-box thinking that is not done by our collective governments.

    Shall I keep going? I can continue to rant and rave about government waste forever. Sure, not all corporations are lean and mean – but like the laws of nature, those businesses should be culled through the economic cycle (that is, if it weren’t for Government handing out billions in bailout money to keep the uncompetitive businesses alive to hamper the growth of the ones which ARE competitive).

  31. @ Phil – that’s up to you, but your comments reflect more on your understanding of government spending than they do on the public sector. Look, it’s easy to cherry pick examples of gross mismanagement. This is true in both the public and private sectors. What is ridiculous is generalizing these rare occurances to characterize entire sectors. And just so everyone is clear, it is elected representatives that make major decisions, not bureaucrats.

    The anti-government posts are making subjective judgements on value. Some of this is self-interested – i.e. I don’t have children, therefore the Universal Child Care Benefit is wasteful. Some of it is ideological – i.e. the belief that all taxes are confiscatory, and most public sector workers are overpaid. But any contention that government departments and workers are not regularly subject to oversight and audit is divorced from reality. How do you think the eHealth problems were uncovered in the first place?

    Did you vote for your current government (either municipal, provincial or federal)? If so, be constructive and let them know your views. If not, as I said before, feel free to run for office yourself.

  32. @Houska….waste in the private sector? Are you talking about Nortel? Whenever there is waste in the private sector, these companies become roadkill. There is no comparison.

  33. The real problem is us. We the people.

    Steve Jarislowski sums it up best:

    Canada is a first rate country, run by second rate politicians, elected by third rate people.

    We are not a crusading nation, and everyone has a “being average is fine” atitude.

    High taxes are “ok” because as long as everyone is doing reasonably well, then it is “ok”

    Bottom line without laying blame on the unions, politicians, or whoever…. Canada does not have an income problem, it has a spending problem.

    As a nation we have to decide what exactly it is that we want our gov’t to do for us.

    Healthcare , roads, police, fire, ambulance, military, education. It’s all good.
    Arts, free massage for politicians, welfare for capable people, senate, governor general office for people who werent actually born here, and thus not “real” Canadians could be fine too. Just realize all these things cost.

    What about a system where you selected what you wanted to pay for?

    Want healthcare? Divide cost among all taxpayers as I am sure everyone would want that.
    Want to support welfare for capable people?
    Dived the cost among those who support it. Maybe they wouldnt be so gung ho “save the world” if they had to shoulder the whole cost.

    Kinda like when a street in my city wanted a paved road. Petitions were signed, councillors were phoned. Local TV did a big story.

    The paving was approved, BUT it was announced that the whole city tax base would not foot the bill. The total cost would be divided by the 20 or so houses that got the paving , spread out on the tax bill over the next ten years.

    Suddenly the paving was not so important anymore, and the soapbox was torn down.

  34. With all due respect Matt, if you don’t think there is waste in the private sector among “non-roadkill” companies, you aren’t paying attention. There’s all sorts of waste, it just doesn’t get the same amount of media attention as a juicy government scandal like e-Health. The individual shareholder in a public company has far less access to question such waste than a taxpayer does with respect to their government.

    As far as those saying spend less on government programs, the examples given are absurdly small. The Senate? The Governor-General? That won’t do anything to the deficit. Why not give some real examples? Anyone want to privatize health care like American conservatives are rioting to protect? Cut spending on education? Old Age Security? On the muncipal level, what about emergency services, road maintenance, garbage removal, etc. Let’s get some real numbers up here.

  35. @ Brendan – Again, I’d ask you to pick up an introductory economics textbook and read up on “public goods”. Your post seems to be a good example of the “if I don’t directly benefit from it, I shouldn’t have to pay for it” mentality.

    If you’re interested, I hear Somalia is a largely tax free environment. And there’s no pesky government to enforce laws, civil order, etc. No welfare, public health care/education, or free massage for politicians. Sounds lovely.

  36. At times I think that some people will argue for lower taxes even if they fall to 0.1%. People always argue for lower taxes, in good times or bad.

    Government running a surplus in good times? Lower taxes! Return people their money!

    Government running a deficit in bad times? Lower taxes! Stimulate the economy!

    This is why Keynesianism is so hard to implement in practice. The electorate is typically far too short-sighted to support moderating fiscal policy at all parts of the cycle.

    You need look no further than the idiotic GST cut. Pretty much every economist but our “economist” PM said a GST cut was a dumb move. It was a dumb move period, but especially dumb to do it in an environment of increased government spending and when the economic cycle was by most indicators peaking. Just horrid fiscal management, that’s all the can be said.

    Is their wasted in government? Absolutely. These episodes like E-Health are extremely damaging to the public image. But if you think this kind of waste is confined to the public sector, think again. Just look at the recent example of Thain at Merrill Lynch spending $1M to decorate his office in the middle of an economic meltdown.

    What people (and the media) need to realize is that these examples of waste in the government amount to very small percentages of overall government spending. People see $5M, $10M, $2M figures and think that’s horribly wasteful. And in truth, the idea should be to cut out ALL waste, no doubt about it. But consider the federal budget totals more than $150B annually! Even the sponsorship scandal, which totalled perhaps $100M over a large number of years, constitutes well less than 0.1% of overall government spending.

    So, bottom line, if you think “trimming the fat” from the federal budget will balance said budget when the current deficit is approximely 20-25% , you’re living in a fantasy world. (Which, I dare say, is where many on the extreme right wing reside).

  37. There are definitely examples of waste in the private sector, but I can sell my shares with the click of a button if I don’t like the way a company is being run, or I can choose not to purchase their products. To suggest that I should move out of the country because the government is wasteful, is not in the same ballpark.

    Trimming the fat at all levels of government would help but it is not the only answer. And although this is a little off-topic it does tie in. Until 5 or so years ago, you could have a weekly rental of a school gym in Ontario for $200-300 for the entire school year. Now it costs in the neighbourhood of $3000 for the same. Previous to the hike there were groups before and after us using the gym (hockey, soccer, basketball, you name it). Now it’s only us. The government wants healthier people to ease the burden on health care, but the costs of government facilities have become prohibitive. This goes back to an earlier post about thinking outside the box.

  38. @ Sapphire:
    So $200 / 40 weeks = $5 per week. Since schools etc. have been required to address waste, they removed the custodian who had to remain on site until the building was empty, or they had to get cost recovery for the same, plus any other costs associated with the use. As a building manager in the not-for-profit sector, I know I could not rent our building for $5 per event, and would be hard pressed to meet costs at 10 times that. Seems you want it both ways — lower taxes, and government subsidies!

    DAvid

  39. Canadian Capitalist

    Even the Government says that there are savings to be had in finding “efficiencies”. The last budget said such savings amounted to $2.5 billion or 1% of budget spending. Granted, it doesn’t get us far to cover the deficit but it is a starting point.

    We also need to have a debate on actually cutting program spending. Yes, we can’t cut all spending. We need to pay for health care, education, infrastructure, defense etc. but that doesn’t mean we can’t even have a debate. Perhaps, we can institute tolls; privatize some crown corporations. IMO, we can’t simply say *every* government spending program is so sacrosanct that they can’t even be on the table.

    Tax increases should also be part of the agenda. We can’t simply pretend that cutting costs alone will get us there as every major party is currently doing:

    http://www.cbc.ca/canada/story/2009/04/15/ignatieff-taxes015.html

  40. @DAvid
    Unfortunately they have THREE custodians in the building while we are there (and not one of them has ever been spotted outside the break room – but that’s not the point). Nice guys… just a lot of wasteful spending. Of course it would cost $3000+ for 32 weeks when there are 3 people to pay. I’m not complaining about paying my share of the $3000+ either.

    The point is, if it was a nominal fee like it used to be, then more people would be encouraged to use the facilities and the expectation is that they would come out healthier, thus easing the burden on our health care system. Health care burden eased = less money required to spend on health care. I don’t think it’s a stretch. Certain municipalities have parks&rec programs that are heavily subsidized just for this reason. Others leave the full price of the programs to the people. I don’t have to tell you which programs are more popular.

    Also, I have not asked for lower taxes. I have asked that they not be raised.

  41. AIR my point is that if people have to pay the cost themselves rather than having everyone foot the bill we would be better off.

    How would you feel if you went out to dinner with 10 people and had a meal and one drink.
    One jerk orders lobster, 10 drinks, 2 desserts and wants to split the bill 10ways?

    Would you agree to that, or would you rather pay what you actually ate?
    I think you would split it 10 ways
    Support welfare? You pay then because I don’t. We would all refuse to pay and then no more welfare.

  42. @ Brendan – that’s a fairly extreme position you’re taking… that there should be a pure user pay model for all services. One that the vast majority of individuals would not support. And guess what, we live in a democracy. So how much national defence or law enforcement would you purchase? There are significant free rider problems that your system would create. I’m not making this up. Google “public goods” and read away.

    I’d be more inclined to believe the sincerity of your position if you cut a cheque to the government for all the public services you’ve consumed in your lifetime. And before you say “well, that’s what I pay taxes for”, were you paying income tax when you went to kindergarten? If so, congrats. You’d be the most entrepreneurial 5 year old of all time.

  43. Brendan,
    Possibly you would like to manage the individual who is currently on welfare as an employee of yours? Or pay higher policing costs because some desperate former welfare recipients find other ways to survive. Life on a macro (societal) scale is a balance. If we as a society ceased paying welfare supports, do you really think those folk would disappear? Of course not — we would just create a class of people who might do stupid & dangerous things to meet their basic needs, causing grief or damage to others in society.

    Many of those receiving welfare are not able to function in our capitalist business society, often due to various mental illnesses. Possibly we should lock them in an asylum? THAT would, for sure, remove them from the welfare rolls; or maybe we should just euthanize them. As a matter of fact, why not treat anyone in society we find somehow distasteful in the same manner?

    Your lack of compassion astounds me.

    DAvid

  44. @Sapphire,
    Problem is the School Board budget and the health care budget are not linked, and there is a huge timeline disconnect between the inputs (exercise) and the results (long term health). Until such time as the budget is truly global, you will not see one agency funding activities that benefit another. We are already seeing communities charging extra fees to individuals from outside their municipality. They will run programs for their taxpayers, but not for those from neighbouring towns. So even the communities you speak of are not likely offering rec programs altruistically. Their taxpayers agreed to fund the! In similar fashion, the school board is not likely to expend it’s budget to benefit the illness care system, specially when Health Ministries themselves pay lip service to their preventive health divisions. In Canada, 98% of health care spending is acute care. Less than 2% is spent on preventive health.

    I look forward to the subsidies you are prepared to support for nutritional foods. If we make good food free, we will all live healthier, and we can reap the health dividend, right? The real question becomes how much is one part of society prepared to pay, so another part reaps the benefit? Many contributors to this topic seem to be largely unsupportive of increasing their costs for others’ benefit — where are the altruists?

    Everyone wants something for nothing, myself included, however, we all expect a decent paycheque, a reasonable standard of living, etc. Eventually, someone has to pay the piper, the consumer pays, or the taxpayer pays. You can have both, but you can’t have neither.

    DAvid

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  49. My hope is that we can continue to carry the defecit (and yes that means borrowing and paying interest) and NOT rasie taxes until the economy improves a little.

    When the economy improves, we’ll all not mind so much a small increase in income and consumer taxes.

    I don’t understand why our government just does not automatically raise taxes in good times and decrease them in bad times, as a policy.

    Brendan, are you suggesting that a Down Syndrome kid who needs extra support all his life be put on a “pay” system?

    In society, there are those who have more capacity for success and those who have less. It’s just the luck of the draw, really. I am lucky to be born healthy, smart, and into a middle-class family where I learned values that helped foster a hardworking ethic that has led to some success. I am more than willing to help subsudize those who have not been so lucky.

    Up to a point, of course 😉

  50. Why is it that Alexandra seems to be the voice of reason in every thread? 🙂

  51. @ sapphire – Only for those who believe that raising taxes when they are already quite high is something reasonable.

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  53. A substantial rise in taxes may prompt the smarter section of the population to move to a different country where taxes are less excessive.