Mural, done. Woot! 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.
Fair enough analysis. Except for a couple of things.
Finally, a quibbling point. I really hate the words “progressive tax”. It’s really a tax that, percentage-wise, increases as your income increases. That’s why I think it is (purposely) mislabeled as a progressive tax. It should be called an escalating tax, and I really hate it as a concept.
Just my two cents worth. BTW, you’ll note that even applying the 6% to 5% GST reduction in Year 5, the CPC surplus (after debt repayment, etc) is about $15 billion. Sufficient cushion against rainy days.
Finally, it’s time that folks thought “outside the box”. There’s more ways than “the Liberal way” to serve the people, yet still retain single-payer healthcare, our daycare programs, etc. And eleiminate waste and duplication in Ottawa. And get the Feds out of purely provincial jurisdictions. Plus make a start on repairing the chronic underfunding caused by Martin’s drastic 1990′s cuts which should have been reversed starting about Y2000-Y2001.
It also helps that the GST cut, as a election strategy, is clear and simple to understand. And the GST is the most hated tax in the land. Good policy plank; wonder why the Libs didn’t do it a long time ago.
Granted it’s not an entire 2/7th’s
Let’s do some math on that one.
Currently we take in $29.7 billion in GST. The plan is to reduce it by 30%. Which, should give people that 30% to spend, at which point it would again be taxed 5%, assuming of course that it all is spent.
Proposed Revenues After reduction = $29.7/1.30 = $22.9
Essentially giving people another $6.8 billion to spend. Of which GST “could” be applied to this amount as well.
$29.7 – $6.8 = $22.9
$6.8 * 0.05% = $0.34
$22.9 + $0.34 = $23.24
$6.4 billion, in comparison to $6.8. That’s close enough to 2/7th’s.
$100-$400 in savings is inconsequential. That’s a little more or less than a dollar a day, what would you do with a dollar a day? More importantly, how would you spend $1 a day.
This article isn’t about the Liberals, or their taxation principles, or the Conservatives. It’s about the thought that cutting GST is good for low-income “folks”.
GST is a regressive tax, not a progressive tax. The amount of GST you pay increases as your income increases, however, this is only due to increased expenditures on luxury goods and services. The tax itself does not increase with your income, hence, it is not progressive.
You’re right. It’s an election strategy. It’s great politics but to say it’s going to help the poor or that it is good fiscal policy is just plain wrong.
There is GST on the purchase price of houses and apartments which is then reflected in the mortgage and rent payments. The same applies to the cost of producing and supplying groceries.
There is not GST on things like foreign vacations, savings and stock investments and under the table cash purchases.
Fred, Do you really think that the prices of houses, rent or groceries will go down when GST is reduced? The money that is saved will go to the property owner, producer, or supplier not the low-income person. Don’t kid yourself.
Also, It’s incredibly difficult for someone considered to be low-income to save enough money to buy a house. Below, please find a table giving the LICO for different family configurations and demographics. Take a hard look at the people that we are talking about.
Low Income Cut Offs Before Tax
[...] low income families the yearly savings ranges from $43-$260. Again, I will stress on how this will be an inconsequential savings for low-income families. How do you [...]