As Ottawa prepares to unveil its budget on November 4, a growing chorus of voices from the business and financial community is urging the federal government to consider something few politicians dare whisper raising the Goods and Services Tax (GST). The idea, according to a recent report from the Business Council of Canada, is that if the government must find new revenue to offset rising spending and ballooning deficits, the GST is the “least distortionary” way to do it.
On paper, it makes sense. Canada’s deficit is projected to hit $68.5 billion this year up sharply from $51.7 billion last year and that’s before accounting for additional defence spending to meet NATO commitments. With a sluggish economy and higher public spending on the horizon, the math simply doesn’t add up. Something has to give.
But while the economists may be right about the efficiency of the GST as a tax tool, the political and social costs could be steep.
The GST currently at five per cent applies to most goods and services Canadians purchase. That means a $100 item becomes $105 after tax. It might not sound like much, but a small increase say, one or two percentage points would be felt immediately at checkout counters across the country.
In today’s climate, that’s a tough sell. After years of inflation, rising interest rates, and stagnant wages, Canadians are already struggling to stretch every dollar. Increasing the GST would effectively make life more expensive overnight. And for small and medium-sized businesses many still reeling from pandemic losses and now dealing with higher input costs due to global trade tensions a GST hike could deal another blow by dampening consumer spending.
As Dan Kelly, president of the Canadian Federation of Independent Business, put it: “Consumer income is already under great fire. This would effectively add to that a bitter pill to swallow.”
He’s right. While the federal government might see a GST hike as a straightforward revenue boost, the optics are terrible. Few things rile up Canadians like a visible tax increase. A rise in the GST would hit consumers every time they open their wallets and that visibility could become political kryptonite for any government brave enough to attempt it.
Let’s not forget the lesson from history. Former prime minister Stephen Harper famously cut the GST twice from seven to six per cent in 2006, and then to five per cent in 2008. Those cuts weren’t just economic moves; they were political masterstrokes that helped cement Harper’s reputation as a tax-cutter who put money back in Canadians’ pockets. Reversing that narrative could be a dangerous gamble for the current government, especially with an election always on the horizon.
Of course, from a fiscal standpoint, the argument for raising the GST has merit. Sales taxes are relatively efficient compared to income or corporate taxes they don’t distort investment or savings as much, and they provide a steady stream of revenue. But economics doesn’t operate in a vacuum. Public sentiment matters. And right now, Canadians’ patience for anything that increases their cost of living is wearing thin.
Finance Minister François-Philippe Champagne has promised a budget that’s “ambitious in our investments” and “rigorous in our savings.” That sounds nice but ambition and rigour don’t pay down deficits without difficult choices.
If the government does choose to raise the GST, it will need to make a strong case to Canadians: that the increase is temporary, targeted, and tied to clear, tangible benefits such as stabilizing finances, strengthening defence, or funding key public services. Without that clarity, it risks being seen as just another tax grab from a weary public.
In short, raising the GST might be the “smart” option on paper but in practice, it’s a political minefield. The question isn’t whether it would work. It’s whether Canadians can afford, or tolerate, the cost.
