Canada's GST at 21: a tax expenditure view of reform

Abstract

Canada's GST qualifies as one of the most important fiscal innovations in the country's history. Due to its expansion to the subnational sphere through harmonisation, its scope has grown over time. This has amplified the non-neutralities, inequities, and compliance and administrative costs that have existed since its inception in 1991. This article briefly reviews the GST against best design practices and carefully examines the numerous exclusions from the base (tax preferences) present in the system. The central analysis focuses on the tax expenditures associated with those preferences and assesses whether the GST is the best instrument to achieve their objectives. The article concludes that the GST is not the best instrument and it identifies alternatives where feasible. It proposes the elimination of some of the GST reliefs (non-export zero rating, exemptions, and rebates) in the short term, and calls for a comprehensive review of the GST regime that pertains to public sector bodies, non-profit and charitable organisations, and the financial sector.