OPINION — Living with the GST

Vera Eden joined the goods and services tax (GST) revolt the other day. When a plumber came to her Victoria home, she paid him for his work, but they agreed to ignore the GST.

“We hate it,” said Eden, when asked why she did not pay the tax. “And it felt good.”

The rebellious move saved Eden money, and gave her a chance to thwart Prime Minister Brian Mulroney and the federal tax collectors over the most despised tax in Canadian history.

Two years after the tax was born, rancor over the GST is as strong as ever, pushing normally law-abiding Canadians into the burgeoning underground economy.

Like the poor, this type of black market has always been around. But for many, the GST has provided justification for joining it.

The GST continues to be a lightning rod of discontent in Canada, binding complete strangers in mutual resentment. The constitutional debate may have prompted Canadians to look inward, but the GST has helped them speak out. “The GST comes up in every conversation, on the job or off,” said Saskatoon plumber Neil Kreger. “With the economy so bad, you have to kick something and the GST is handy.”

The best way to kick the GST, of course, is to not pay it. In the past, service workers such as plumbers and painters have been attracted to under-the-table deals to avoid paying income tax. But the GST has given consumers a reason to join them.

“The GST gives both buyer and seller reason to pay cash,” says Michael Walker, executive director of the Fraser Institute in Vancouver. Fraser’s economic think-tank estimates the underground economy is worth about $90 billion a year in Canada, nearly 15% of gross domestic product. Walker says it’s hard to determine whether this sector of the economy has grown under the GST, but the anecdotal evidence is persuasive.

Just about every plumber, carpet layer and painter seems to beat the GST at least part of the time. “I get people asking to pay cash all the time,” said Victoria cabinet maker Brian Collins, who insists he always charges the tax. “But they just go someplace else, because so many people are doing it.” The robust underground economy also helps explain the declining GST tax take. GST revenues are down 4.4% — to $9.2 billion — for the first eight months of this fiscal year, compared with last year.

Revenue Minister Otto Jelinek has insisted the fall in GST revenues has nothing to do with the underground economy. He blames the recession, which has curbed consumer spending. Yet retail sales were up 2.7% for the first 10 months of 1992, at the same time GST revenues were falling.

Jelinek also argues the tax has encouraged many underground businesses to register with the government to qualify for tax credits.

So far, the vast majority of GST beaters in the underground economy have escaped capture.

Government documents obtained by Southam News last summer revealed about 340,000 of the 1.7 million businesses that registered to collect the GST had failed to file returns. Yet only three businesses have been charged, including restaurant owner Bruce Ryder of Victoria. Two Winnipeg car dealers were fined $20,000 in December.

With anger over the GST still raging, the federal opposition parties plan to make the tax an important election issue.

“The Tory gamble that people will accept (the GST) in two years is not paying off,” said Liberal finance critic Herb Gray.

Liberal leader Jean Chretien has said he would scrap the tax, but he has not explained how his party would replace the $15 billion it generates annually. The New Democratic Party would scrap the tax as part of a broader reform of the tax system, said finance critic Bill Blaikie. The Reform Party would also get rid of the GST.

— David Scanlan is a writer with Southam News.