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MODELING CHANGES TO THE CANADIAN GST

MODELING CHANGES TO THE CANADIAN GST Chantal Hicks and Jennifer Jones Statistics Canada IMA2007 Conference, Vienna August 20-22 , 2007 The Goods and Services Tax (GST) in Canada Introduced in 1991 Replaced a manufacturer’s sales tax

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MODELING CHANGES TO THE CANADIAN GST

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  1. MODELING CHANGES TO THE CANADIAN GST Chantal Hicks and Jennifer Jones Statistics Canada IMA2007 Conference, Vienna August 20-22, 2007

  2. The Goods and Services Tax (GST) in Canada • Introduced in 1991 • Replaced a manufacturer’s sales tax • A refundable GST credit was introduced to compensate for regressive impacts of the change • GST rate of 7% on most goods and services • Rate reduced to 6% in July, 2006

  3. GST revenues grew faster than federal income taxes or personal income Source: system of national accounts

  4. Design of the GST credit in 1992

  5. The lack of full indexation eroded the value of the GST credit (up to 2000)

  6. Question • How generous is the GST and the GST credit in 2007 compared to 1992?

  7. The Social Policy Simulation Database and Model (SPSD/M) • Static microsimulation model of individuals and families in Canada • Models income taxes, payroll taxes, commodity taxes, and most cash transfers • 20 years of history with varied applications • See www.statcan.ca/english/spsd for more information

  8. Modeling the GST and other commodity taxes using the SPSD/M • An Input/Output model generates commodity tax rates as input to the microsimulation model • 100% cost-push assumptions • fixed consumption patterns • produces effective sales tax rates • Rates become parameters to SPSM which are applied to annual household expenditures

  9. Average GST paid and credit received for families ($2002) Source: SPSD/M 14.2

  10. Average family GST paid and credit received in 1992, by income group

  11. Distribution of net GST by income group Source: SPSD/M 14.2

  12. Average net GST paid by families, by income group (2002$) Source: SPSD/M 14.2

  13. Distribution of families by income group Source: SPSD/M 14.2

  14. Average net GST paid by families, by income decile (2002$) Source: SPSD/M 14.2

  15. Three scenarios for 2007 Default: GST rate reduced to 6% and credit indexed starting in 2000 Source: SPSD/M 14.2

  16. Average change in net GST by income group under 3 scenarios in 2007 Source: SPSD/M 14.2

  17. Percentage of families who would have been better off keeping the GST at 7% but with full indexation of the credit

  18. Conclusion • Families who made less than $35,000 paid similar amounts of GST, net of the credit, in 1992 and 2007 • Had the credit been indexed in 1992 and the GST rate stayed the same, 43% of families would have been better off in 2007 than they were with the GST rate reduction See www.statcan.ca/english/spsd for more information on the SPSD/M

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