Cutting GST Doesn’t Cut It
The Conservatives have offered to reduce GST by 2% from 7%. Many believe that this will create a benefit for low income families – I disagree, continue reading for why.
“Jack Layton has derided the Conservatives promise to cut the GST by a single percentage, but the fact remains that this tax cut benefits the working poor more than it benefits the rich., and you may have noticed that Jack hasn’t been deriding the Conservatives GST cut promise all that loudly.” From – James Bow
First, GST is a regressive tax1. Meaning, it does not increase or decrease with the amount of income that one earns. You pay more GST as you purchase or procure more goods and services that have GST applied to them. However, one must realize that it is not applied to items or services that are considered to be a necessity. Realistically, the bulk of low-income families purchases are GST free items like mortgage payments, rent, and groceries.
Second, GST makes up approximately 15% of budgetary revenues. Last year, the government raked in $29.7 Billion in GST. cutting GST by 2% seems like nothing to a specific individual but 2% is 30% of total GST tax revenue. The reality of that $100-$400 of savings to low income families will be meaningless when government expenditures are cut and services are reduced. Reduce the $29.7 by 30% and compare with our current budget surplus and tell me again if you think it’s a great idea.
Third, there are two groups that stand to receive a substantial benefit from GST. Business, and rich individuals that purchase the bulk of items that are taxed with GST.
Fourth, reducing taxes when we are in a growth stage is generally a bad idea. Expect some negative feedback from the Bank of Canada as they attempt to control inflation, they raised the interest rate by 25 basis points already. Do you think that increasing inflation (due to lower taxes), increased interest(due to rising inflation) rates will help low income families get loans or prosper. I don’t.
So please, think deeper before you proliferate the thought “the fact remains that this tax cut benefits the working poor more than it benefits the rich.”
1 A common misconception and point of confusion is the difference between a regressive tax and a progressive tax.
Regressive Tax: A tax that takes a smaller proportion of income as income increases. The amount of tax paid is negatively or inversely related to income. Looked in the opposite light it can also be considered as a tax that carries a heavier burden on those whose incomes are smaller.
Progressive Tax: A tax that takes a larger proportion of income as income increases or the converse. The amount of tax paid is positively or directly related to income.