ARE YOU HAPPY WITH THE GST CUT?

Have you noticed that since Tuesday you are paying a cent less on your GST?

I don’t know a single Canadian economist who thinks this tax cut is a good idea. (If you know an economist who does, please let us know.) Most of us won’t even notice. And yet this is a substantial reduction in federal revenues — $12 billion a year to be exact. Furthermore making Canada competitive against other countries does no hinge on charging less tax on a package of razor blades. It is difficult now to attract skilled labour and professionals into Canada (especially from the U.S.) because our higher taxes are a deterrent.

It’s true that the two percentage point cut in the GST over the last couple of years equates to a saving of $300 to $400 for the average household – not insignificant.

Yet the GST violates a fair tax principle i.e. that Canadians should be taxed less on what they earn and more on what they spend. The idea behind this was simple enough. Encourage people to save, invest and build an economy that would make Canada a desirable place in which to live. What better way to dissuade conspicuous consumption than to tax people for trading in that perfectly good TV set for the latest one with the newer gadgetry.

But a previous Conservative government lost its nerve. Critics complained the tax was regressive and hit the poor harder than the rich. This problem could easily have been addressed with a more generous tax credit to those with lower incomes.

So what the Harper government has done with this latest cut to the GST is opt for short term political gain at the expense of long term economic growth. As it is Canadians continues to shoulder the highest personal income tax burden among the G7 industrial nations — higher than France or Italy.

Are you in favour of this latest cut in the GST?Or would you prefer a cut in personal income taxes?

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13 Comments »

  1. 1
    Paul Costopoulos Says:

    This goes beyond a simple tax question. The real question is: as Canadians do we still believe in a just society, one that cares for it’s citizens and provide them with essential services such as health and education? Or do we prefer the American model of each for himself and damn the less economically proficient?
    Tax cuts usually benefit the most affluent and eventually bring cuts in services to the less able to afford to pay for same.
    I say if I get what I am taxed for, I am all for it. If not lets get a government that will settle that. Yes it will require courageous pols and ones not looking only as far as the next election. Are they out there?

  2. 2
    Tony Kondaks Says:

    Well, hell has frozen over. Neil McKenty sounding like a dyed-in-the-wool free-marketer. And I’m pleased as punch.

    The big push by libertarians and free-marketers in the States these days is something called The Fair Tax which, simply put, is a national retail sales tax that replaces the federal income tax (which would be eliminated under the scheme). The Fair Tax would, essentially, be exactly like Canada’s GST but without any income tax.

    Like Neil, its proponents feel that high income taxes are a deterrant to attracting skilled professionals and that taxpayers “should be taxed less on what they earn and more on what they spend.” The Fair Tax’s proponents, also like Neil, favor tax credits for the poor so as to eliminate any manifestation of regressive taxation for low-income earners.

    I don’t know whether Neil, like his American counter-parts, also favors the elimination of income tax in Canada…do you?

    What may make Neil extremely uncomfortable, however, is whom his bedfellows-in-policy are: the likes of Mike Huckabee, Ron Paul, and Allen Keyes. See: http://tinyurl.com/yoau4l

  3. 3
    Paul Costopoulos Says:

    No income tax and a sales tax at 30%, really?

  4. 4
    jim Says:

    An area where the Harpoon could have helped to ease the survival pain was to eliminate the sales tax on fuel oil, natural gas and electricity sold to residences. If the savings could be narrowed down to the poor only then they would’nt have to make life savings decisions such as sacrificing pills for food or food for heat or or living in a cold home to be able pay the rent.
    Jim

  5. 5
    Tony Kondaks Says:

    Paul: I assume you’re referring to John McCain’s and his reference to the Wall Street Journal saying that the Fair Tax would increase one’s tax rate to the 30s?

    According to the FAQ of the site, the rate would be 23% (see the answer to question 5): http://tinyurl.com/2t328d

  6. 6

    Tony:

    If I were to live my life again, I would take some courses in economics – the dismal science. I simply don’t know whether it would be feasible to eliminate the personal income tax. Surely it would be impossible, in any case, to eliminate corporate taxes. I would like to study the implications of the Fair Tax.

  7. 7
    Paul Costopoulos Says:

    Tony,
    23% is still way over what most “ordinary” people would accept. I for one would have to choose between essentials at some period and I know others who would have to do without.
    Tax credits once a year are fine if you have the means to wait for them.
    I agree with Jim about eliminating taxes on fuels and electricity…even if it meant a freeze on my income tax rate…or a slight raise.

  8. 8
    Chimera Says:

    There isn’t a tax system in the world that is going to please everyone. And no, I haven’t particularly noticed a difference — total consumption tax for me is now 13.5% rather than 14.5%. Big deal.

    If we’re looking to implement a “fair tax” system, we should be scrubbing the entire structure and starting over. Flat, fixed income tax, and designated spending for that money. Open-book government accounting proceedures. No fudging. No deductions. And anyone can audit the government books simply by applying to do so, with two provisions: they have to do (and pay for) the audit themselves; and their results must be made public immediately.

    No consumption tax on necessities. And necessities need to be defined, redefined, and updated as the term “necessity” changes with the times.

    Sliding scale of consumption tax on luxury items. The less essential the item, the higher the taxes on it.

    It would also help a lot if we got off the Monopoly-money standard and went on the gold standard. Basing our economy on what the rest of the world thinks is stupid, stupid, stupid!

  9. 9
    Alex Thomas Says:

    Going on the “gold standard” would require taking gold out of the commodities market, away from the influence of speculators. Otherwise, the value of any currency would be, as it is today, at the mercy of how much caffeine the major traders have managed to imbibe. Too much, and they buy like drunken sailors on shore leave. Too little, and they get surly and sell just to screw other people up. As it stands now, the price of gold would develop an inverse relationship to the value of the currency. Price goes up, currency goes down.
    Before the US came off the “gold standard”, the price of gold was fixed as $20 US per oz. Period. Hence, the double eagle, the $20 gold piece, one ounce of gold. No speculation was allowed, and you could demand wantever deposit you had with any bank in gold.
    Roosevelt took the US off the gold standard, and gold was fixed at $35 per oz, and owning or holding gold became illegal. Only the government was allowed to fix the value of currency. Then, later, everything was allowed to be subject to speculation, and now, we have gold at $800 per oz. Somewhere along the line, a massive selloff is in the works.
    Too many people have invested too much money and energy into maintaining the speculation in commodities, for any number of governments to rein the dragon in now.
    The solution? Buy your own gold, and hold it. When it goes down, and it will, eventually, it simply means that people are putting more confidence in other commodities, including currencies. Should all else fail, you will still have the most desireable of all commodities in hand.

    My name is Alex Thomas. Buy low, sell high, and invest in yourself.

  10. 10
    Alex Thomas Says:

    Aside to Neil: Whose money is it again? Hmmm?

  11. 11

    Alex:

    It’s our money for sure.
    Another personal point. Last year I took a bath on some U.S. stock positions. Not that the stocks weren’t sound. They were. I lost on the currency exchange. The Canadian dollar went through the roof and the American into the toilet.

  12. 12
    Alex Thomas Says:

    So, that means that the less money the government takes away, the more we have in our pockets, that we can spend, that will generate GST anyway, right? Actually, a cut in personal income tax would make more sense. The government may be the single most influential factor in the economy, but it really produces NOTHING of value. It only consumes.
    Little realized fact: for every dollar that you are paid in your day-to-day endeavours, you are expected to generate four dollars in value for your employer. If not, you are seriously overpaid. Can anyone say, for example, that a CEO who is paid, what, 300 times what the average worker in his company makes, actually generates 1200 times that average amount in value for the company? If so, show me the figures. If not, show him the door.
    The same goes for the government. The GST was supposed to replace the “hidden” Federal Sales tax. It just points out what incredibly incompetent money managers the politicians and bureaucrats happen to be. The best government, as I have said before, is the least government. It still, always has been, and will remain for all time, OUR money. If property, as some socialists are wont to say, is theft, then taxation, as it is practiced today, is rape. And we ALL know how much fun THAT is, right?
    My name is Alex Thomas. Are we having fun yet?

  13. 13

    Without a doubt: cut personal taxes. I can’t see how anyone would ever justify not doing so. Equating tax cuts with a less compassionate society no longer resonates – if it ever made sense.


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