If the federal government requires extra revenue to pay for new spending initiatives, Canada’s chief executives and economists say it should come from raising the goods and services tax (

GST

), according to a report released by the

Business Council of Canada

on Wednesday.

“If the government must raise revenue, there is an overwhelming consensus that it should use the (GST), because it is the least distortionary option,” the report, titled 2025 Budget Consultations: What we heard, said.

The consultation was conducted between Aug. 4 and Sept. 24 and included surveys of economists, policy experts, members of the Business Council of Canada (BCC) and former senior officials in the lead-up to the

federal budget

expected on Nov. 4. The survey includes responses from 18 experts and 57 members of the BCC.

The analysis said federal finances face four key pressures: a larger debt stock built up over recent years; structural headwinds in the economy brought on by trade uncertainty and softer economic growth; Prime Minister

Mark Carney

‘s agenda, which promises significant investments; and new defence commitments made under the North Atlantic Treaty Organization (NATO).

While most respondents said the federal government faces a spending problem, not a revenue problem, there are growing fiscal pressures over the medium term that can’t be overlooked.

“I cannot see how the increase in defence spending to five per cent of GDP can occur without a rise in revenue,” said one respondent quoted in the consultation.

The

federal deficit

is expected to hit $68.5 billion this fiscal year, according to the most recent fiscal outlook released by the Parliamentary Budget Officer, with the debt-to-GDP ratio expected to remain above 43 per cent over the medium term.

The GST currently sits at five per cent, but it was once at seven per cent almost two decades ago. Former prime minister Stephen Harper cut the tax by a percentage point in 2006 and by another percentage point in 2008, fulfilling a key election promise during the 2005-06 federal election campaign.

Respondents of the consultation being released Wednesday are not the first this year to recommend an increase in the GST to bridge the gap in federal finances.

In April, the C.D. Howe Institute released a shadow budget report with suggestions for growth-friendly tax reform, including a gradual increase to the GST.

“Well-designed consumption taxes do less harm to economic performance than taxes on personal income and business profits,” the report said. “A two-step GST rate increase from five to six per cent in mid-2025, and then to seven per cent in mid-2026 would increase federal revenues by $27.5 billion by 2027-28.”

Experts and chief executives in the BCC consultation also called for the government to commit to key fiscal anchors, including a “dashboard approach” that incorporates a combination of measures like a declining debt-to-GDP ratio, an expenditure cap or deficit reduction target and a declining debt-servicing ratio.

While there is no risk of Canada losing its credit rating in the near term, respondents warned that this stability relies on a reputation for fiscal discipline built in the 1990s and 2000s that has since eroded and “can be lost quickly and without a ton of warning.”

The respondents also recommended a program review of government operational spending with “teeth” and tax reform that encourages investment in the Canadian economy.

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• Email: jgowling@postmedia.com