Should the federal government raise the goods and services tax (GST) as a means of paying down the deficit and funding more spending in the upcoming budget?
A group of Canadian financial and business leaders is urging Ottawa to consider it in the event officials need to find a way to offset expected increases in spending.
This comes ahead of the anticipated federal budget, which Prime Minister Carney’s Liberal government says will be tabled on Nov. 4, and which is expected to include multiple spending commitments amid the trade war aimed at bolstering the Canadian economy — while also increasing the deficit.
The Business Council of Canada released its 2025 budget consultations report on Wednesday, which summarizes the country’s fiscal policy position via the input of 50 chief executives, as well as 20 economists, investors and former senior officials between Aug. 4 and Sept. 24.
While the group was “divided” about whether or not there is an immediate need to increase revenue for the government, there was a “consensus” that raising the GST would be the best way to do so.
“While divided on the ‘if,’ the experts were remarkably aligned on the ‘how.’ If the government must raise revenue, there is an overwhelming consensus that it should use the Goods and Services Tax (GST), because it is the least distortionary option,” the report said.
However, that may also mean more pressure on household budgets already struggling with affordability, and as small and medium-sized businesses face having to shut down due to tariff costs.
“The impact on small businesses would be hard and quick if there were a GST increase. It would result in consumers having fewer dollars to spend — fewer dollars that they would then be able to allocate to the purchase of goods or services in Canadian small businesses,” said Dan Kelly, president of the Canadian Federation of Independent Business.
“Consumer income is already under great fire. We’ve just come through years and years of heavy inflationary pressure and this would effectively add to that if the tax increase came into effect — it would be a bitter pill to swallow.”
The GST is how the federal government generates tax revenue from most items and services that are purchased in Canada.
The GST stands at five per cent, meaning that if an item has a sticker price of $100, it will cost the customer an additional $5 in federal sales tax.
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In provinces like Alberta, there is no provincial sales tax added onto the GST.
For goods and services purchased in other provinces and territories, the provincial sales tax is added to the GST.
For example, in British Columbia, a seven per cent provincial sales tax means purchases made in the province will usually be subject to a total of 12 per cent sales tax, which includes the five per cent GST.
Former prime minister Stephen Harper last changed the GST, with a drop from seven per cent to six in 2006, followed by a drop from six to the current five per cent in 2008 — where it has stayed since.
Raising the GST would effectively make the costs for most items and services higher immediately, which means consumers may struggle even more with affordability.
Last month, the parliamentary budget officer said he expects the federal government to post an annual deficit of $68.5 billion this year, which is up from $51.7 billion last year.
However, the officer’s projections did not take into account plans to increase defence spending to meet the updated NATO targets.
In responding to a Global News question, Finance Minister François-Philippe Champagne’s office would not say whether such a plan is being considered for the budget.
“We will be ambitious in our investments, rigorous in our savings and unrelenting in pursuing a long term and sustainable fiscal outlook,” John Fragos, press secretary for Champagne, said in an emailed statement.
“We look forward to spelling out our plan to do exactly that on November 4 when we table our new government’s first budget.”
Kelly noted that a GST increase could be “a big revenue generator for the federal government.”
“It’s not inconceivable that they would consider a hike,” Kelly said.
“At the same time, I think before the federal government would turn its key on any kind of tax increase it would have to be reasonably confident that the public could stand it, and it’s not like we’ve been knocking it out of the park with consumer income.”
Although it may be useful as a revenue tool, Kelly says it may act as “kryptonite” for political leaders — meaning they could struggle to win over voters at the next election.
“Canadians are particularly sensitive to sales tax increases because they are so visible, and the backlash that would be felt would be pretty swift,” Kelly said.
“They would potentially do that at their peril at the polls.”
© 2025 Global News, a division of Corus Entertainment Inc.
