The 2014 Federal Budget has now been tabled, and the newspapers and twitter are filled with analysis of this budget. While many are slamming the budget for being ‘all talk and no action’ there is a very important measure announced in it that is getting almost no coverage in the media. This measure helps address many of the regressive features of the GST/HST and gets more money into the hands of low income Canadians.
One of the biggest challenges levied against the GST is that it is regressive. As I have said before all taxes can in fact be regressive. Whether or not any particular tax is truly regressive depends specifically on how the tax is implemented. For example, income tax can easily be regressive but we in Canada have decided to design our income tax system as progressive. So questions about regressivity can only be answered by looking at the implementation of the tax.
With respect to the GST there were features of the GST implementation that offset its regressivity.
- the zero rating and exemption of some goods. 0 rated goods include basic groceries while exempted goods include things like health and financial services.
- general tax reform. This last one is important and gets and making sure you understand the history of policies before making statements. Our tax system underwent significant reform just before the GST (it should have been in tandem but politics got in the way). These tax reforms benefited low income Canadians and were meant to also overcome the regressivity of the GST.
- the GST tax credit. The tax credit is meant to offset the tax paid not to bring a household above the poverty line. It is a very specific credit with a very specific purpose.
The current administration of the GST tax credit requires individuals to apply every year by “checking the GST/HST Credit application box on their annual income tax return.” (Budget 2014, p. 327) Once checked, the CRA then considers whether this individual is eligible for the credit. CRA does not review returns for qualification for this credit when this box is unchecked. This is a curious method for administering this tax credit. CRA knows who is eligible, so why not use CRA to determine eligibility. This is a system that is used for many of our other credits. While it is not a huge burden to check the box, it begs the question of why we have it. By using this opt-in method low income individuals who overlook the box miss out on this very important tax credit.
In Budget 2014, the federal government is proposing a very significant and important reform to the administration of the GST/HST Tax credit:
Budget 2014 proposes to eliminate the need for an individual to apply for the GST/HST Credit and to allow the Canada Revenue Agency to automatically determine if an individual is eligible to receive the GST/HST Credit. A notice of determination will be sent to each individual who is eligible for the GST/HST Credit. In the case of eligible couples, the GST/HST Credit will be paid to the spouse or common-law partner whose tax return is assessed first. (p. 328)
I applaud the government’s proposal to move the GST/HST credit away from the opt-in method and towards this assessed method. This credit is important money to get into the hand of low income Canadians and this simple change will likely make a big difference to some very needy households.