Taxes on Expenditure
As we first saw in Chapter 4 , an excise tax is a tax levied on a particular
good or service. In many countries, such goods as tobacco, alcohol, and
gasoline are singled out for high rates of excise taxation. Because these
goods usually account for a much greater proportion of the expenditure of
lower-income than higher-income groups, the excise taxes on them are
regressive. A sales tax applies to the sale of all or most goods and services.
All provinces except Alberta impose a provincial retail sales tax. Such a
tax is mildly regressive, because poorer families tend to spend a larger
proportion of their incomes than richer families. Both excise and sales
taxes are often referred to as “indirect” taxes to contrast them with
income taxes, which are levied directly on the income of individuals
or firms.
Canada has a nationwide expenditure tax, the Goods and Services Tax
(GST), which applies to the sale of almost all goods and services,
currently set at a rate of 5 percent. The GST has now been harmonized
with the sales taxes in several provinces, in which case it is referred to as
the Harmonized Sales Tax (HST), with a rate equal to 5 percent plus the
rate of the province-specific component.
important. Equally subtle, and probably even more important,
are the longer-term effects on the growth rate of the economy
and Canadians’ average standard of living.