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MODELING CHANGES TO THE CANADIAN GST Chantal Hicks and Jennifer Jones Statistics Canada IMA2007 Conference, Vienna August 20-22 , 2007 The Goods and Services Tax (GST) in Canada Introduced in 1991 Replaced a manufacturer’s sales tax

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modeling changes to the canadian gst

MODELING CHANGES TO THE CANADIAN GST

Chantal Hicks and Jennifer Jones

Statistics Canada

IMA2007 Conference, Vienna August 20-22, 2007

the goods and services tax gst in canada
The Goods and Services Tax (GST) in Canada
  • Introduced in 1991
  • Replaced a manufacturer’s sales tax
  • A refundable GST credit was introduced to compensate for regressive impacts of the change
  • GST rate of 7% on most goods and services
  • Rate reduced to 6% in July, 2006
gst revenues grew faster than federal income taxes or personal income
GST revenues grew faster than federal income taxes or personal income

Source: system of national accounts

question
Question
  • How generous is the GST and the GST credit in 2007 compared to 1992?
the social policy simulation database and model spsd m
The Social Policy Simulation Database and Model (SPSD/M)
  • Static microsimulation model of individuals and families in Canada
  • Models income taxes, payroll taxes, commodity taxes, and most cash transfers
  • 20 years of history with varied applications
  • See www.statcan.ca/english/spsd for more information
modeling the gst and other commodity taxes using the spsd m
Modeling the GST and other commodity taxes using the SPSD/M
  • An Input/Output model generates commodity tax rates as input to the microsimulation model
    • 100% cost-push assumptions
    • fixed consumption patterns
    • produces effective sales tax rates
  • Rates become parameters to SPSM which are applied to annual household expenditures
three scenarios for 2007 default gst rate reduced to 6 and credit indexed starting in 2000
Three scenarios for 2007 Default: GST rate reduced to 6% and credit indexed starting in 2000

Source: SPSD/M 14.2

slide17
Percentage of families who would have been better off keeping the GST at 7% but with full indexation of the credit
conclusion
Conclusion
  • Families who made less than $35,000 paid similar amounts of GST, net of the credit, in 1992 and 2007
  • Had the credit been indexed in 1992 and the GST rate stayed the same, 43% of families would have been better off in 2007 than they were with the GST rate reduction

See www.statcan.ca/english/spsd for more information on the SPSD/M