Potential GST Hike: Will Ottawa Raise Taxes to Tackle the Deficit?
The Canadian government is facing pressure to address the growing deficit as it prepares to table its budget on November 4. A group of financial and business leaders suggests that raising the Goods and Services Tax (GST) could be a viable option to offset increased spending. However, this proposal is met with concerns about its potential impact on affordability for households and small businesses.
The Business Council's Recommendation
The Business Council of Canada, in its 2025 budget consultations report, highlighted a consensus among experts that the GST is the "least distortionary" way to raise revenue if the government deems it necessary. The report was based on input from 50 chief executives, 20 economists, investors, and former senior officials. While opinions were divided on the immediate need for increased revenue, there was strong agreement on the GST as the preferred mechanism.
Concerns for Consumers and Small Businesses
An increase in the GST could exacerbate the financial pressures faced by Canadian households, especially given the current inflationary environment. Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), warns that a GST hike would reduce consumer spending and negatively impact small businesses already struggling with tariff costs.
"The impact on small businesses would be hard and quick if there were a GST increase. It would result in consumers having fewer dollars to spend." - Dan Kelly, CFIB
What is the GST?
The GST is a federal sales tax applied to most goods and services purchased in Canada. Currently, it stands at five per cent. For example, an item priced at $100 will incur an additional $5 in GST.
The GST is applied differently across provinces. Alberta, for instance, does not have a provincial sales tax on top of the GST. However, in British Columbia, a seven per cent provincial sales tax is added to the GST, resulting in a total sales tax of 12 per cent.
Historical GST Changes
The last significant changes to the GST were made by former Prime Minister Stephen Harper, who reduced it from seven per cent to six in 2006, and then from six to five per cent in 2008. It has remained at five per cent ever since.
Deficit Projections and Government Response
The parliamentary budget officer projects a federal deficit of $68.5 billion this year, up from $51.7 billion last year. These projections don't include planned increases in defence spending to meet NATO targets. The office of Finance Minister François-Philippe Champagne has not commented on whether a GST increase is being considered, but stated the government is committed to a sustainable fiscal outlook.
Political Implications
While a GST increase could be a significant revenue generator, Dan Kelly suggests it could be politically risky. "Canadians are particularly sensitive to sales tax increases because they are so visible, and the backlash that would be felt would be pretty swift," he said, suggesting that such a move could jeopardize the government's chances in the next election.
