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?