Throughout my entire life, the GST has been present; however, for many Canadians this is not the case. When I had previously asked some of my older relatives about the introduction of the GST and what it was like, several spoke negatively about it and felt that it was just another instance of the government being greedy and their endless pursuit to take more of Canadians’ hard-earned money. However, despite the tax’s unpopularity and pledges to eliminate it from opponents of the Mulroney government, no government has eliminated it since and the existence of the tax seems to be a settled issue these days (Crawford, 2013).
Additionally, the prospect of increasing it seems considerably bleak. In the most recent poll I could find on this topic “…only 23 percent of Canadians support restoring the 7 percent GST, while opposition to an increase is close to three times this level, at 64 percent.” (Rodier, 2016, para. 10). In fact, out of the five main federal political parties, the Liberals were the only political party in which a minority of their supporters were opposed to increasing the GST to its former rate of 7% (Rodier, 2016). In many other developed countries, sales taxes seem to be a considerably less controversial tax, as much higher rates are imposed. The EU average is 21.8% and the average among Nordic countries, who have some of the strongest social safety nets in the world, is 24.9% (Mengden, 2025). To contrast, combined federal and provincial rates in Canada are considerably lower, ranging from 5%-15% depending on the province (Government of Canada, 2025).
Unlike other tax rates, such as those on income, capital and corporations, which are not particularly low in Canada compared to other countries, these lower-than-average sales tax rates provide room for increasing the GST (Enache, 2024; Government of Canada, 2025; PWC, n.d.-a; PWC, n.d.-b). In this paper I will explore the main opportunities and challenges associated with increasing the GST to advance fiscal federalism and how it could impact intergovernmental relations between the federal government and provinces.
Opportunities
The creation or expansion of social programs rarely comes from provinces alone. It is usually done with the financial help of the federal government, often with conditions attached to the transfers they provide to the provinces. For example, the Canada Health Transfer and the Canada Social Transfer, or more recently the dentalcare and pharmacare programs (Fiscal Federalism Policy Network, 2023; von Stackelberg, 2025). Although provincial governments can create their own social programs, in order for programs to be implemented across the entire country Kent (2012) argues that the federal government has to be the policy entrepreneur and contribute significant funding to the provinces since they are the level of government which has a national reach.
Additionally, consumption taxes such as the GST are often considered by economists to be one of the least economically harmful type of taxes – less harmful than taxes on income, capital and businesses (Tax Foundation, n.d.; The Economist, 2024a). If the federal government were to increase the GST, this could help fund existing social programs or the creation of new ones. “…raising the GST by two percentage points, while also increasing the tax credit for lower-income workers, would net the feds about $20-billion a year…” (Dahir & Laurin, 2024, as cited in Ibbitson, 2024, para. 6). Given this projection, the additional revenue would cover some or all of the following types of healthcare, which are either not covered or only partially covered under Canada’s current single-payer healthcare system:
- Dentalcare – It is estimated that the federal government’s dental care program would cost “…$13 billion over the next five years.” (von Stackelberg, 2025, para. 3). Five year’s worth of the cost of the dentalcare program could be covered with just one year’s worth of the proceeds from a 2% GST increase, with $7 billion to spare (von Stackelberg, 2025).
- Pharmacare – It is estimated that the federal government’s pharmacare program, if expanded to become a true single-payer system, would cost $35 billion this year. A 2% GST increase could help cover 57% of the program’s annual cost (Barkova & Busby, 2023).
- Mental healthcare – It is estimated that if the government covered psychotherapy services it would cost roughly $4.4 billion a year, using estimates from 2013 which I indexed for inflation and adjusted to account for Canada’s increased population. A 2% GST increase would cover the entirety of this cost with $15.6 billion to spare (Canadian Psychological Association, 2013, as cited in Anderssen, 2015).
It is important to note that these estimates only focus on direct costs, not indirect costs which could be lowered through the existence of these programs. For example, less visits to the ER and increased productivity due to Canadians having access to mental healthcare regardless of their ability to pay, which would lead to cost savings in other areas of healthcare spending and additional tax revenue from increased economic participation (Mental Health Commission of Canada, n.d.).
Challenges
There are considerable political challenges associated with increasing the GST, regardless of whether there is a good policy argument for doing so or not. I believe that there are several reasons for this.
Canadian voters have a troubled history with consumptions taxes. When the GST was first implemented it become deeply unpopular right off the bat. Part of this had to do with the chaotic implementation of the tax, but also the characteristics of the tax itself. Consumption taxes are an instance of double taxation since the money an individual is using to purchase goods and services is presumably their after-tax income (Bradburn, 2024). Additionally, the GST (as with most consumption taxes) is regressive, meaning that the total percentage an individual pays in GST does not increase with the amount of income they earn or spend (The Economist, 2024a). Furthermore, it makes goods and services more expensive, including many essentials. This last point is something that Brian Mulroney acknowledged was a significant political challenge when his government implemented the GST and was trying to market it to voters. This tax ended up costly the Conservative Party of Canada at the time greatly politically. In the following election, although notably under Kim Campbell and not Brian Mulroney, the Conservative’s majority government was reduced to only two seats (The Canadian Press, 2010). Since then, Canadians largely seem to have had a hostile attitude towards consumption taxes. A few more examples to illustrate this are provided below:
- The Joe Clark government introduced a budget in 1979 which most notably included significantly increasing the tax charged on gasoline. The goal of the hike was to get the government’s finances in order, but the proposal was considerably unpopular. The budget failed to pass, causing Clark’s minority government to collapse. Clark then went on to lose the election to Pierre Trudeau, who won a majority (Grier, 2023).
- Stephen Harper was elected on a platform in which one of his main promises was to decrease the GST from 7% to 5%, which he implemented after taking office. The GST rate of 5% remains in place to this day (Rodier, 2016).
- More recently, the Liberals under Justin Trudeau arguably suffered politically because of their consumer carbon tax, which after successive increases and years of criticism and unpopularity became politically unviable (Kestler-D’Amours, 2025).
This leads to several questions. What politician would want to increase the GST if it will cost them politically? Is it even possible at this point to form government with a platform that includes increasing the GST? And if so, once the GST is increased is it possible to get re-elected? These are significant barriers to advancing fiscal federalism through increasing the GST.
As mentioned previously, this unique dislike for consumption taxes in Canada is not reflected as greatly in other developed countries. For example, when the UK increased their sales tax (VAT) to 20% from its previous 17.5% (a rate that was already higher than all jurisdictions in Canada), it largely seemed to be a non-event in the minds of voters and did not become a noticeable issue in the next election (Government of Canada, 2025; The Economist, 2024a; The Economist 2024b). It is possible that the initial introduction of the GST and its chaotic implementation still brings up negative emotions for many voters in Canada (Bradburn, 2024).
Another political challenge associated with increasing the GST is the potential for pushback from premiers. This is because the federal government will want to attach conditions to the transfers of any additional GST revenue they will give to the provinces, with the goal of influencing provincial areas of jurisdiction such as healthcare and education. Premiers typically do not like having conditions attached to money the federal government gives them, since they lose some control over how they can spend the money. Additionally, tax increases on premier’s constituents may hurt them politically even if it is the federal government who increases the GST, since voters will dislike that things cost more and may direct their frustrations toward their premier. Because of this, premiers have a lot to gain politically from taking a stand against a GST increase. This was the case when the GST was first introduced, in which Ontario provincial party leaders voiced their opposition to the tax and reiterated it during the following provincial election campaign (Bradburn, 2024).
A more recent and somewhat different example is the consumer carbon tax. Like the GST, the consumer carbon tax was another consumption tax which became quite unpopular. Many Conservative premiers made their opposition to the carbon tax a central part of their political platform and agenda, despite it ultimately being an issue of federal jurisdiction. Additionally, many premiers even forwent implementing their own consumer carbon tax despite being given the option to do so by the federal government. As a result, they had the consumer carbon tax that was designed by the federal government imposed on them. The only conclusion that I can draw from this decision is that some of these premiers would rather the federal government take the political blame than impose their own carbon tax, even though they would have more freedom to design it (Gorman, 2024; Office of the Premier, 2018).
It is possible that if the federal government were to increase the GST in order to create or expand social programs through the provinces, a similar scenario would play out. Some premiers may refuse to enter into funding agreements with the federal government, based off the political calculation that refusing to cooperate would prevent the tax from becoming permanent and that a new federal government would eventually reverse the GST increase. It is a lot harder to get rid of programs once they are already in place than to simply choose not to implement a new program in the first place.
None of the current federal political party leaders have proposed increasing the GST. In fact, most of them have proposed new GST exemptions for certain types of goods and services (Rana, 2025; The Canadian Press, 2025). Although there is a reasonable case to be made that these proposed exemptions are warranted, it seems we are moving in the opposite direction of advancing fiscal federalism through realist means, which I believe is by increasing the GST. Whether or not a federal political party will propose increasing the GST again one day is yet to be seen.
References
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