There is a superficial similarity, but some crucial differences between the Canadian goods and services tax and the GST proposed by the Opposition.
The similarity is that the tax burden is shifted from income to consumption and that the tax replaces wholesale taxes. This means that exports are no longer taxed, and in theory it encourages saving.
Canada introduced a 7 per cent GST in January, 1991. The Coalition’s tax is set at 15 per cent.
The essential differences are that Canada’s tax is administratively more clumsy on two counts and is easy to avoid on two counts.
Canada’s tax has to live next to provincial consumption taxes of between 8 and 11 per cent. This means businesses have to collect two taxes, not one, and remit them to separate governments (except in Quebec where they can be collated first). In Australia the Constitution prevents the states from levying consumption taxes (though they can charge licence fees on petrol, alcohol and tobacco).
Canada has more ambiguous exemptions than proposed in Australia. Purchases of things in large volumes (even from a retailer) could give someone a right to an exemption. The grocery-store exemption for food is also ambiguous. However, since Fightback II’s exemption of food, Australia may be in no better than Canada. Is a coleslaw in the fridge at KFC taxable takeaway food or untaxable grocery food? If it is takeaway, what about coleslaw bought at Woollies?
Canada has one route for avoidance not available in Australia. Half of Canada’s population lives with a two-hour drive of the US, where there is no GST. Many Canadians contemplating major purchases (or a big collection of minor ones) think about that option.
Canada’s tax is more avoidable through cash purchases. Evidence for this is larger demand for $C100 and $C1000 bills. The Australian plan has GST chargeable throughout the system with rebates only claimable on proof of on-charging the tax. Thus an electrician pays 15 per cent tax on a coil of wiring, as it is used and on-charged to the customer, the electrician can claim a rebate on the tax paid on the coil. So an electrician will not be responsive to a cash deal because he will not get a rebate.
Another difference is the large improvement in small computer systems and bar-coding (at lower prices) since the Canadian tax was introduced to help small businesses cope.
Political life is too complex to put Prime Minister Brian Mulroney’s demise down to the GST. One day Dr Hewson might find himself in the same position and no doubt most voters could, even now, point to a dozen potential reasons for it other than the GST.