The GST reduction: a dream for consumers, a potential nightmare for businesses.

• Author: Gilbert, Beverly J.
• Position: Special Report on Consumer Law

On May 2, 2006, the Conservative Party led by Stephen Harper presented its first budget. In the budget, the Conservatives followed through with their promise to reduce the Goods and Services Tax (GST) from 7% to 6%. There was no indication as to if and when we would see the rate reduced to 5% as promised. Many question why the Conservatives have chosen this strategy as it will be very costly to implement and could wipe out the surplus entirely. The cost is estimated to be as high as $8.5 billion over two years with Canada's national surplus currently about $8 billion. The provincial governments are also watching closely as the rate reduction will not only impact the federal government's coffers. The sales tax revenue of both Quebec and Prince Edward Island will be reduced by the GST rate reduction as their sales taxes are calculated on the GST included cost of the good or service being provided. Given that Canada currently has a minority government, the Conservative government gambled that it would receive the support required to get the change through both Parliament and the Senate or face another election. It was unlikely though that the opposition parties would have opposed the proposed change, as it is so popular with the voters.

The implementation date was July 1, 2006; the Saturday of a long weekend. This choice of date caused problems for business as employees and service providers had to forgo part or all of their holiday to implement the changes to cash registers and other recording systems. There were and are many other challenges that businesses were not prepared for, as this is the first GST rate change since the introduction of the GST in 1991. Businesses generally found that it was not as simple to implement as many believed.

Benefits of the Rate Decrease

Consumers will be the big beneficiaries of the change; however, the amount saved will depend on the amount spent. Basic groceries are tax-flee but GST is added to items such as detergents and most other consumer goods. Educational, medical and financial services are not subject to GST so there are no savings there. However, these businesses pay GST on their costs so the service providers will benefit from the rate reduction. It is unlikely, however, that the savings will flow through to their customers. Most other services are subject to GST so consumers of accounting and legal services, for example, will pay less GST. You won't save on your residential rent, as it is not...