In the 2006 Federal Election, the Conservative Party of Canada, lead by Stephen Harper, promised to reduce the G.S.T. by one percentage point (down to 6% from 7%) immediately and another percentage point (to 5% from 6%) within 5 years. The result would be about $4.8 billion less in tax collected per year for each % drop.
Liberal economists charge that a G.S.T. tax cut is "good politics, bad economics". Why is that? What is economically bad about a tax cut that is spread thinly across the population so that the greatest number of people would benefit (and no huge benefit is bestowed on any group of people, like would happen with any other kind of tax cut).
Personally and professionally, I would have preferred an income tax cut, along with a capital gains cut. I would have also preferred seeing the Employment Insurance plan turned into a registered unemployment savings plan (R.U.S.P.) that employees across Canada could access, to a limit, anytime they are unemployed. However, each of these changes still wouldn't have reached the vast number of people reached by the G.S.T. tax cut.
Rule #1 for tax cuts: If your goal is to cut taxes for the greatest number of people, cut the tax paid by the greatest number of people.
In Canada, the tax generator that collects from the greatest number of Canadians, young and old, rich and poor, ethnic or native, is the Goods and Services Tax.
But will there be an impact felt by the population? After all, only $4.8 billion per year will be retained by the population because of the reduced tax. That is an awful lot of $0.50 per $50 transaction tax reductions. I don't see consumers going crazy because of the tax cut (or the next 1% tax cut that is very much expected in the Spring of 2007, the Budget that might launch Canadians into another Federal Election). But don't forget, while Liberal economists are too short-sighted to realize the true benefit of an extra $4.8 billion in the economy (they'd prefer to see that money go to their friends owning hotels in Shawinigan or who own advertising agencies), these are the same economists who thought it was better to strip $20 billion from provincial healthcare transfers rather than reduce $20 billion worth of bloated bureaucracy and programs that don't benefit the average citizen.
Respectfully,
D'Arcy E. Barker, B.Sc., REBC
CHARTERED FINANCIAL PLANNER
REGISTERED EMPLOYEE BENEFITS CONSULTANT
