The Canadian Goods and Services Tax or GST (Taxe sur les produits et services, TPS) is a multi-level sales tax introduced in Canada in 1991 to great controversy. In some respects it functions like a value-added tax similar to what is found in Europe; it was more directly modelled on a similarly named tax in New Zealand. When it was introduced it replaced the Manufacturer's Sales Tax (MST) that had been previously applied at the wholesale level on manufactured goods.
The tax is a 7% charge on all goods and services except certain essentials such as food, residential rent, and medical services. Exports were also exempted. Low income individuals can also receive a GST rebate calculated in conjunction with their income tax.
In 1991 Canada's economy was doing poorly and the deficit was massive. In an attempt to cure these problems Brian Mulroney's Progressive Conservative government proposed the creation of a national sales tax. Before this time every province in Canada except Alberta had a provincial sales tax.
The proposal was an instant controversy, and in many circles it became known as the "Gouge and Screw Tax". The vast majority of the Canadian population was irate and disapproved of the tax. Although the GST was promoted as revenue neutral in relation the repealed MST, the shifting of the tax away from exported manufactured goods would make life more costly for Canadians. The other parties in Parliament also attacked the idea. The Liberal-dominated Senate refused to pass the tax into law. In an unprecedented move to break the deadlock Mulroney used a little-known constitutional provision to temporarily increase the number of senators by eight, thus giving the Tories a majority in the upper chamber. In response to this the opposition launched a filibuster and further delayed the legislation. Not only was the tax itself controversial, but what the tax covered also caused anger. The Tories defended the tax arguing it was merely a replacement for the hidden tax on manufacturers that would, in the long run, make Canada more competitive and help balance the books. Despite the opposition the tax was made law.
The short term ramifications of the GST were large. Mulroney's government became one of the least popular in Canadian history, and the personal animosity towards his government played a significant role in the defeat of the 1992 referendum on the Charlottetown Accord. It also lead to the election of a strong Liberal majority under Jean Chrétien in 1993.
Chrétien, in the election campaign, promised to repeal the GST, which the Liberals had denounced so vociferously while it was the official opposition. Once in office, however, the Liberals discovered that the GST was all but essential if Canada were to erase its budget deficit and restore its economy. Thus to great controversy both within and without the party the Liberals chose to keep the GST. In response Liberal MP John Nunziata voted against the budget and was expelled from the party. Heritage Minister Sheila Copps, who had personally promised to oppose the tax, felt honour-bound to resign and seek re-election. She was re-elected with ease, however, as was the Liberal government in the 1997 election.
Instead of repeal, the Chrétien government attempted to restructure the tax and merge it with the provincial sales taxes in each province. Only three provinces signed on, however. Nova Scotia, New Brunswick, and Newfoundland now have the 15% Harmonized Sales Tax instead of separate GST and PST. It was originally intended to name this tax the "Blended Sales Tax", but the name was quickly changed when the government realized that a "BS Tax" would be an endless source of jokes.
Today the GST is not much of an issue, other than with the general public who are aware of the complete absence of any federal sales tax in the United States. It is widely regarded by politicians as an inescapable fact that such a large revenue generator cannot be done away with. Many also argue that a switch towards heavier consumption taxes on the European model has helped the Canadian economy become more efficient and competitive with lower-priced goods for the international market. It can also be claimed that the in-your-face nature of the GST has kept Canadians acutely aware of their high level of taxation. This has led to a major change in political culture so that deficit financing is no longer considered an option by the federal and provincial governments.