Conservatives’ GST Cuts are Ineffective or Worse
Following current Conservative doctrine, which tends to equate taxes as always a bad thing, no matter the utility they may provide, the minority Conservative government cut the Goods and Services Tax twice. This move was criticised by the other parties but also by many economists as a poor and ineffective strategy.
The GST enables the federal government to collect a sizeable amount of money that supports all sorts of programs improving the well-being of Canadian living. With respect to the Conservatives’ reducing the GST from 7 percent (in 2006) to ultimately 5 percent in 2007, The Toronto Star said1 (2 November 2007)
“Economists winced. (Reducing a consumption tax neither boosts productivity nor encourages investment.) . . . Cash-strapped mayors, weary anti-poverty activists and disheartened aboriginal leaders looked wistfully at the foregone $5.2 billion. And shoppers quickly forgot they had an extra $3.04 a week jangling in their pockets. . . . Ottawa is passing up the chance to strengthen Canada’s industrial base, shore up its aging infrastructure and upgrade the skills of its workers. It is saying that cities can solve their own financial problems, aboriginal communities can continue to languish and the gap between rich and poor can keep growing. . . . Urban voters could have been spared a steep rise in property taxes if Harper had shared 1 cent of the GST with municipalities, rather than giving consumers a bit of extra change at the cash register.”
So if cutting the GST would cause such difficulties for fixing our infrastructure and all sorts of societal issues, who and how exactly would it help? A CanWest News article on Dose2 (1 January 2008) explained
“Patti Croft, chief economist with the investment firm Phillips, Hager and North, said anyone making big-ticket purchases will benefit from the consumption tax reduction. But, she said: “In general most economists would prefer a cut in income taxes. It’s a more efficient way to reduce the tax burden. . . . “”
According to the article the cut puts $5 billion ($6 according to Harper) back into the economy. But that equates to only between $150 – $200 per family, per year.
The cut in the GST is really only felt by those capable of making very large purchases, as The Star article noted: “The biggest beneficiaries will be the affluent. A corporate executive purchasing an $80,000 luxury sport utility vehicle will save $800. A single mother buying a $10 child’s snowsuit at Goodwill will save 10 cents.”
In other words the GST cut has almost no real effect on the majority of people’s disposable income but it rips roughly $5 billion dollars out of the government’s hands to effectively use on the programs that make Canadian life better.
