Sigh. The Conservatives set out an Economic Statement this afternoon, and it includes a measure to further reduce the Goods and Services Tax (GST) from 6% to 5%. From this, I infer that the Conservative government is willfully stupid:
- Reducing the GST is bad economics. Just ask anyone who has given any thought to the matter.
- Reducing the GST is bad - or at best, pointless - politics. Just ask voters.
Now, I can understand that the Conservatives are in the business of cutting taxes. But the intelligent way of implementing that agenda involves cutting stupid taxes and keeping (or even increasing) smart taxes. Sadly, that doesn't seem to be the Conservative way of implementing this agenda. According to Table A.1 on this page, the GST cut accounts for over 60% of the reduction in taxes over the next five years. Stupid, stupid, et cetera.
Okay, yes, they are accelerating the previously-announced rate at which the federal government would be reducing corporate taxes (Table A.2 from the same page), and that's a good thing. But it's not enough to dispel the odour of ideologically-driven amateurism.
The GST cut isn't popular with voters? So they prefer a GST of 7% to one of 6%? Would they also prefer a rate of 8% to 7%? I doubt it.
Is the implication that of all possible GST rates, voters have a preference for 7%? Is this the endowment effect?
My take is that Canadians prefer a lower GST, but somehow see it as a cynical right-wing policy. Or they feel greedy for wanting it and therefore don't want to admit they like it.
Posted by: Phil | October 31, 2007 at 01:05 AM
I think what is meant by that statement is that Canadians aren't impressed with the GST cut. The savings tend to get gobbled up by retailers, especially in items that have fixed prices taxes in (street meat, vending machines, etc.).
I think many Canadians understand that it was a ploy when first proposed. Of course no one is going to say no to a tax cut, but just the same they realise that the savings from a GST cut are more imaginary than substantial, unless you're quite wealthy.
Posted by: AndrewF | October 31, 2007 at 02:47 AM
I'm curious what effect lowering CIT ates by 7 pp would have on the analysis you performed earlier contrasting various tax rates and levels of social spending.
Posted by: AndrewF | October 31, 2007 at 03:18 AM
this is why I worry about Mark Carney as BOC Governor- I don't have a good understanding of how much of the Torinomics he buys into. Do you?
Posted by: brendon | October 31, 2007 at 02:48 PM
Oh, I'm not too concerned about that; the Bank is pretty independent. Monetary policy as practiced at the Bank of Canada is by now pretty mechanical. And since the mechanism doesn't appear to be broke, I don't see him trying to fix it.
Posted by: Stephen Gordon | October 31, 2007 at 02:53 PM
true enough, the inflation target does tend to enforce discipline.
Posted by: brendon | October 31, 2007 at 04:43 PM
Mr. Gordon
Strongly suggest you read Sheila Copps in the Sun a couple of days ago.
Quick question - which side were you on when the tax was introduced? I remember many economists, particularly labour and Liberal Party economists ranting about the GST being regressive, etc.?
Where they wrong?
And secondly, Mr. Gordon, your assertions about taxes and competitiveness is a joke. Admit it, their is no direct correlation between taxes and being competitive.
Why don't you just acknowledge the real reasons you don't like the Conservatives (and there are enough) and cut the tax nonsense because these cuts are brilliant.
Posted by: zero | November 01, 2007 at 09:56 PM
Zero,
please read the small print. He is not saying that nobody likes tax cuts, he is just saying that if you want to cut taxes, these are wrong taxes to cut. (Particularly as nobody will notice much, prices change so much anyway).
Posted by: reason | November 02, 2007 at 10:35 AM