Deferring Federal Taxes: Illustrating the Deficit Using the GST

Summary

• It is sometimes difficult for everyday Canadians to grasp the size of the federal deficit— estimated at $26.6 billion for 2019-20—because of its sheer size.
• This bulletin, along with subsequent planned instalments, aims to give Canadians that context by calculating what the federal GST rate would have to be to in order for the federal budget to balance in 2019-20.
• The calculations account for both the GST itself and the related GST credit, which is designed to mitigate the effects of the GST on low-income families. As the GST rate is adjusted in this analysis, so too is the related GST credit.
• If the federal government decided to raise the revenues it needed to pay for its spending instead of deferring those taxes to the future through deficits (i.e., borrowing), the GST rate (currently 5 percent) would have to rise to 9 percent.
• This calculation is not intended as a policy recommendation but rather an illustration of the degree to which the federal government is deferring taxes to the future rather than fully taxing today to pay for its current spending.