In Rob Carrick’s recent election wish list for investors, he led with a wish to eliminate GST on mutual funds. I share his desire to give mutual fund investors a break on mutual fund costs, but I don’t think this measure is likely to help investors much.
Any time there is a reduction in the cost of providing a product or service, the savings get shared by producers and consumers. This split isn’t necessarily even, though. In very efficient markets for commodity items, most of the savings are enjoyed by the consumers. In inefficient markets, producers keep most of the savings.
The mutual fund industry in Canada is competitive, but not on fees charged. Only a small slice of the industry competes on fees. The rest compete for access to customers who don’t understand fees.
The bottom line is that if we eliminated the estimated annual GST of $567 million paid by mutual fund investors, there is little reason to believe that much of the savings would be passed on to investors. Much of it would go to increased profits for mutual fund companies.
I don’t see GST on mutual funds so much as a tax on investors as it is a tax on mutual fund companies. As a result, I’m not in a huge hurry to see this tax go away.