I think Jeffrey Simpson’s “A triumph of politics over economics” summarizes the issue best:
Personal and corporate income tax cuts, as every economist knows, tend to stimulate savings and investment, which is what an economy needs to become more productive and competitive, thereby raising overall living standards. Lower consumption taxes stimulate more – wait for it – consumption, some of which leaks out of the economy in the form of purchasing imports and taking trips abroad.
The GST cut is the triumph of base politics over sensible economics.
Thus far, the Harper government’s tax and spending policies have been deeply disappointing for the country’s competitive position.
The government will have drilled a $10-billion hole in federal revenues through the two-point GST cut that will do nothing for productivity and competitiveness when compared with every other available tax cut, as the economists interviewed by the ROB illustrated this week.
Both policies represented the triumph of politics over economics, and short-term political considerations over long-term economic thinking.
Instead of this nonsense, tax policy should involve raising the GST, introducing carbon taxes, and then offsetting these new revenues by reductions in personal and corporate taxes to make Canada more efficient, competitive, fair and green.
(And as an aside, CBC’s Marketplace did an interesting story this year where they showed that, in many cases, the GST was just swallowed by rounding, giving more money to the seller and less to the consumer. Examples included movie and theatre tickets, whose “price includes GST” didn’t check a whit as the GST rate did. The companies just made more profit on each ticket.)
Sigh. So more’s the pity that we pretty much stuck with this 5% rate now. Though both the Liberals and the NDP argued against the cut, neither will take the political risk of undoing it (despite Conservative ads claiming the contrary). Only the Greens, bless them, are willing to to pledge to raise the GST back to 6% and use the increase to fund mass transit in cities.