Messing with the GST

From the Worthwhile Canadian Initiative, I see that the both the right-leaning Conservatives and left-leaning New Democrat Party in the Ontario provincial elections are campaigning to remove their equivalent of the GST from home heating and electricity. This is, of course, an economic nonsense. Liveo di Matteo from WCI attributes it to the dead-hand of mediaeval thought concerning the “just price” still resonating in the voting public’s consciousness. He may well be right on this, but it is noteworthy that political parties from opposite sides of the spectrum are promoting the same nonsense, so I suspect that there is more at play here.

The trouble is that the argument against favouring home heating and electricity in Canada is much harder to make than the argument against removing New Zealand’s GST from fresh fruit and vegetables. The reason for this is that Canada messed up its GST from the start by zero-rating basic foodstuffs. The transactions costs that are created when moving from a clean GST to one with exceptions are already part of the Canadian system, and the argument against favouring some goods over others, while still valid, loses its power if the system is already riddled with such judgements.

The main cost of introducing a new exception is the greater difficulty of defending against the next exception and then the next and so on. If we are not going to put the GST on home heating and electricity, why not apply the same logic to clothing, to home repairs, to … In fact, why not remove the GST from everything except luxury boats?

New Zealanders continue to owe a huge debt of gratitude to the 1984 Labour government for giving us a clean GST, but eternal vigilance is required to keep it that way.