the consumption tax

The G.S.T. tax is a consumption tax. It is levied on all goods and services consumed.In Europe it is often called a VAT tax or value added tax.It increases the value (or the price)of every item by the amount of the tax,It ,in effect is a gross income tax as it reduces income by the amount of the tax.So the extra income  to the government comes right out of the pockets of consumers.They consume less in direct proportion to the increased income to the government.

The rationale for a consumer tax is that it can be used to reduce national debt or even the deficit of the government.The consumer tax is not meant to be a permanent tax;the income and corporate taxes are permanent tax as they are paying for the government services that they receive.In Canada,the G.S.T tax has been in place for twenty -two years and it is time to reduce it or eliminate it.However it is clear that eliminating the consumption tax would put pressure on to increase the income tax or the corporate tax.So eliminating it is not likely.

In Canada,the G.S.T. tax was first introduced in 1991.It was introduced at 7% and was reduced to 5%.Brian Mulroney likely brought it in to reduce the growing deficit.It was about $5 billion at the time and considered to be quite large.I estimate that the G.S.Ttax in it's first full year brought in about $22 to $25 billion.This was enough to eliminate that pesky deficit.It is likely that in the first year the government did not know how much would be collected.However an even stranger phenomenon is that the deficit climbed from 1991 to 2000 even with the G.S.T.tax.