Reducing the GST again would be stupider, stupider, stupider, stupider

I keep hoping that the Conservatives' throne speech proposal to reduce the GST by another percentage point will receive the recognition it deserves: derision and disavowal. The derision part seems to to be covered:

Plan to cut GST blasted: The Conservative government's plan to trim the GST for a second time has been soundly rejected as a top tax-cutting priority by a large group of economists surveyed by The Globe and Mail.

All 20 economists said other tax cuts would be better for the country than trimming another percentage point from the goods and services tax, which represents more than $5-billion in revenue.

It's a remarkable show of unanimity on public policy, given that the responses were from organizations as diverse as the Fraser Institute, the Canadian Auto Workers, Canadian Manufacturers & Exporters, Bank of Montreal and the Halifax-based Atlantic Institute for Market Studies.

But the Harper government doesn't seem to upholding its end of the bargain by disavowing the measure. Worse, it seems likely to be passed, even though he has a minority and none of the other parties support the measure.

In the last election campaign, the Conservatives ran on an immediate one-point reduction from 7% to 6%, followed by a possible further reduction to 5%. The best reaction to this idea was that of the University of Western Ontario's Jim Davies:

"Stupid, stupid, stupid, stupid," he said.

But the Conservatives won, and they did it anyway. But it's not at all clear that they actually scored any political points with the measure:

Voters cool to GST cut, Tories warned: The GST cut at the centre of the 2006 federal budget got a surprisingly rough ride from Canadians in focus groups that Ottawa commissioned to road test its fiscal plan.

The Conservative Party's campaign pledge to trim the hated goods and services tax was widely regarded by political pundits as a master stroke that helped the Tories win office, even though economists panned it as the wrong cut to make.

But many Canadians canvassed for the Department of Finance appeared to agree with economists, telling market researchers in focus groups that they felt there were better ways of offering tax relief.

"The most frequent argument raised in many of the sessions was that the GST was not the best tax to reduce," said a report prepared for the department and obtained by The Globe and Mail.

...

Canadians surveyed didn't buy the notion that the GST cut was the best way to deliver broad-based tax relief for all, Ottawa was told.

"This statement was viewed by many individuals as not true," the market researchers said.

Critics told focus group moderators they'd like Ottawa to chop income taxes or hike the taxable income threshold instead.

Stephen Harper has been exposed to training in economics, and he has a (by now, deserved) reputation as a political strategist. So why in the world is he pushing a policy that is bad economics and which will confer essentially no electoral advantage?

 

Comments

[geoff]

I completely agree with you and the 20 professional economist out there that wasting a $1 billion or so of federal revenue on this type of tax cut is very very foolish. However and like others I blogged about the Harper promise during the last election campaign the Liberals had already occupied the let's cut PIT area so the only place left was the GST whether Harper remembers any of his economics or no he certainly remembers his practical politics 101. I have to admit I'm starting to forget some of the bloody nonsense surrounding the introduction of the GST, but didn't Reform Party characters hate the tax and thus Harper, again from a purely limited political perspective would win by continuing with the additional 1% reduction. He gets to say he completed a promise to the Canadians who find life complex and confusing (maybe 65% of voters) and also pleases the nitwits in his base (maybe 15%) . Good or bad fiscal policy is not relavent Harper who is worried about a majority wins.

[Stephen Gordon]

Actually, it's closer to $5b/yr.

[JC]

Wouldn't there be a possibility to save this through a transfer to the provinces?
I mean, the provinces could increase their PST by 1%. Obviously, it would have to be a concerted effort for risk of individual premiers suffering the consequences if they went at it on their own. But Harper could actually score on his "asymetric federalism" concept with such a transfer... And Canada wouldn't have to suffer this horrible policy.

[Stephen Gordon]

Good point - I was going to say something along those lines, but I forgot. I remember that when the GST was cut to 6%, Jean Charest said that the Quebec govt had thought of increasing their tax by a point, but they decided that the risks of taking away a tax cut that Quebecers had (apparently) voted for weren't worth the trouble.

But this time, it may be different: the cut wasn't part of an electoral platform, and the provinces (Alberta excepted) don't have the huge surpluses that Ottawa has. I suspect that provincial finance ministers are talking amongst themselves. And with any luck, they may indeed decide to co-operate to neutralise this proposal.

[reason]

Given the poll results I find this comment odd:

The Conservative Party's campaign pledge to trim the hated goods and services tax was widely regarded by political pundits as a master stroke that helped the Tories win office, even though economists panned it as the wrong cut to make.

It seems this tax is hated in the same way as every other tax but less so.

[Stephen Gordon]

The phrase 'hated GST' is something of a cliché now, dating back to the days when it was first introduced. And clichés have a way of outlasting their original context...

[You Whining Bastards]

How many meaningful tax cuts have there been in the last 40 years? Maybe five? You just got a tax cut. Who cares which tax. Enjoy it you ingrates. Where is all the outrage and debate over whether the latest spending announcement is the absolute best use of taxpayers money? When was that ever the case?

[C. B.]

If you don't like this I suggest you send a check to the gov't at the end of the year for the amount you saved and then tell me how you benefited from it. Good luck!