6 Taxes less subsidies

Printable version (PDF) of Chapter 6 (June 30, 2008)

Introduction

6.1 In the Canadian System of National Accounts, the aggregate gross domestic product (GDP) is measured at market prices - that is, at prices faced by purchasers. These market prices include the effects of government intervention in the market, specifically: taxes levied on production of goods and services; taxes on the goods and services themselves; subsidies paid to producers to influence the costs of production; and, subsidies paid to directly change the price of goods and services or the incomes arising from their production and sale.

6.2 Taxes on production include property taxes, taxes on payrolls and capital, and the costs of business licences, permits and fees. These taxes are levied regardless of the current level of production of goods and services.

6.3 Taxes on products, on goods and services themselves, include the Goods and Services Tax, provincial sales taxes, federal and provincial taxes on sales volumes of gasoline and other motive fuel taxes, tobacco and alcohol, etc. These taxes only arise as a result of the actual production or sale of goods and services.

6.4 Subsidies are unrequited payments made to business sector entities by governments to affect the current costs of production or the final prices of the goods and services produced or the incomes arising from that production.

6.5 Subsidies on production include payments made to business to influence the mix of factors of production used in their operations. They include assistance for training and other payments to reduce the cost of labour as well as payments to compensate producers for the interest costs of capital, property and other taxes, etc.

6.6 Subsidies on products directly affect either the price of those goods and services or the incomes arising from their production and sale. These subsidies include payments to reduce the price of, for example, passenger rail travel and other transportation services such as ferries and electricity, natural gas and other home-heating fuels. Also included in subsidies on products are payments to farmers to compensate them for low market prices for their products and to enhance their incomes from that production.

6.7 Whenever possible, taxes and subsidies are estimated on an accrual basis of accounting rather than a cash basis of accounting so that output reflects as accurately as possible the costs related to it.

6.8 In the income-based GDP table, two items relate to taxes and subsidies: taxes less subsidies on factors of production, and taxes less subsidies on products.

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