Think the carbon tax will repay the banker bailout? Maybe not, a rose by any other name...
After President Obamas first international visit to our fair country of Canada, he may have picked up some pointers on how Canada has, for the most part, has come through the current economic crisis with not much more than a few scratches. It is not due to the current Canadian government's mediocre bail out plan. It is because of a cash cow that was implemented by a constitutional loophole in 1989.
The Bryan Mulroney Progressive Conservative government was facing a crisis similar to the current American situation and was looking for a solution. The existing tax scheme already included a 13.5% manufactures sales tax on goods and was applied at the wholesale level.
The idea was to implement a national sales tax, initially at 9%, that would be applied on all goods and service with the exception of some grocery items, rent, medical services not paid by the national medicare plan, and the Canadian financial institutions vetoed having it on their services.
All the provinces (similar to the state level in the United States) in Canada, except for oil rich Alberta already had a retail sales tax at varying rates. As well as federal and provincial income tax. The feds wanted to get in on this action.
As would be expected the tax was met with massive public outcry and disapproval. The Progressive conservative government was going to have a challenge to get the tax into law. The tax was reduced to 7% and the majority government passed it through the House of Commons. The senate, which to this day remains appointed and not elected representation in the country was dominated by the Liberal Party of Canada that had filled it with appointments from the former Liberal government refused to let the bill pass.
Implementing a little known loophole in the Canadian constitution, Prime Minister Mulroney ‘stacked the deck’ and appointed eight temporary senators to take the majority in the upper house and ram the legislation through.
The tax came into effect on January 1, 1991. It turned out to be a cash machine as the federal government profited from most every good and service that was sold in the country. In some places where an existing federal tax or provincial tax existed, the tax was calculated as a tax on top of the tax, such as the excise tax on fuel (37.8 cents a US Gallon), some areas of the country were paying upwards of 19.84% retail sales tax on every dollar spent in the retail sector.
It was to be abolished by Jean Chretien and the Liberals and they ran on that platform in 1993 and won a majority landslide. Once in power, however it was too good to be true and the tax stayed.
The GST has taken many shapes and sizes over the last 18 years. It has since been reduced to 5% by the current Harper government decided that the surpluses that it was generating were getting almost embarrassing to talk about. Some provinces have also gotten in on the action with the Harmonized Sales Tax (HST), combining their provincial tax with the federal one in order to shadow it from the public. There also exists a rebate that refunds the tax to what the government deems a low-income earner.
So when the US President comes knocking for pointers from the Canadian federal government, it can be sure that this type of consumption tax was sure to be a topic of conversation.