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Monday, October 13, 2008

What has free trade and the GST done for Canada?

Brian Mulroney’s conservative governments gave us the GST and the free trade agreement with the United States, and Canada has prospered ever since.

Free Trade agreement (FTA)

Merchandise exports to the US were $100 billion in 1988, the last year before the Free Trade Agreement (FTA) was implemented. By 2002, merchandise exports to the US had grown to $350 billion. Exports to the US as a percentage of our GDP has grown from 19 per cent to 33 per cent in just 15 years. Between 1993 and 2000, exports created four out of every five new jobs created in Canada.

Goods & Services Tax (GST)

The Federal Sales Tax (FST) of 13.5 per cent was contained in the selling price of goods manufactured in Canada and made goods more expensive since wholesalers marked up prices to retailers and retailers marked up those prices to consumers.

Under the FST most goods entering Canada were taxed at a rate of either 13.5 percent or 9 percent for construction building equipment. Importers actually had an advantage over Canadian producers as they paid the FST at a duty paid value at the border, thereby escaping the 13.5 per cent on their Canadian marketing and distribution costs. Therefore, the FST became a significant cost of doing business in Canada, and put Canadian producers at a considerable disadvantage.

The GST replaced the FST in 1991. Since then the GST system has been a factor in the growth of our exports and has provided a significant source of cash that allowed John Chrétien and Paul Martin to balance the books.

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