Friday, May 29, 2009

Why is the GST such a sacred cow

The opposition parties keep nattering on about how much of a mistake it was for the Stephen Harper government to cut the GST. They have blamed the current shortfall in federal revenues squarely on the 2 per cent reduction of the unpopular consumption tax. And recently on TV’s Power Play, former PM Paul Martin repeated the criticism to Tom Clark. Twenty years ago, however, the Grits sung a different tune—if their squawking back then could be characterized as a “tune”.

In 1989, then Prime Minister Brian Mulroney’s Progressive Conservative government proposed a national sales tax of 9 per cent to replace the 13.5 per cent Federal Sales Tax (FST) and an 11 per cent Federal Telecommunications Tax. The FST was generally believed to be detrimental to our international competitiveness. Back then, the Liberal Party lost no time fanning flames of controversy over the proposal, vociferously denouncing it at every opportunity.

So vehement was Grit opposition, the Liberal-dominated Senate refused to pass the tax into law, forcing PM Mulroney to increase the number of senators to give the Progressive Conservatives a majority in the upper chamber. Even then, the Liberals resisted the new tax, launching a filibuster to further delay the legislation.

During the next federal election campaign, chief Grit Jean Chrétien promised to repeal the GST, but in typical Liberal fashion, never did.

Inexplicably, in the twenty years since the GST was introduced the Liberals’ position on the tax has gone from totally opposing it to considering it at the foundation of our federal tax system. To Grit politicians, lowering the tax is akin to cutting healthcare funding.

In 2005, The Canadian Press claimed in an article that the Conservatives did a political back flip because their predecessors imposed the GST and then wanted to cut it. This is faulty reasoning. Increasing and decreasing the rates of tax is a common practice among governments of all stripes. Over past decades, there have been several changes to income tax rates, and in 2006, the government considered it was time to cut the GST—no back flip there at all.

To be fair, the GST is widely considered by economists to be an effective form of taxation, believing that the GST is a more efficient tax source than the income tax.

All true, I’m sure. But it didn’t just recently become true; it was true 20 years ago when Grits wanted to have nothing to do with it and even risked a constitutional crisis in the Senate over its adoption.

Over time, every type of tax should be re-examined. The federal consumption tax rate had been the same for almost 20 years, its time had come.

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© 2009 Russell G. Campbell
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  1. Twenty years ago, eh? And today in QP Harper was complaining about Trudeau!

    Meanwhile, I only need to go back a couple of years to hear the Minister of Finance tell the world what a stupid idea it is to cut the GST:

    Ontario Min of Finance Flaherty on GST cuts as stimulus, Nov 5, 2001(Ontario Legislature:
    "The member opposite again raises the question of reducing the sales tax. I must say that with respect to tax cuts, I agree with Paul Martin. With respect to reducing the GST federally and the RST provincially, I also agree with the federal minister, and we've talked about this. All you get is a short-term hit, quite frankly. You accelerate spending. You pull it ahead by a month or two. It has no long-term positive gain for the economy.

    On this side of the House -- and I say this with respect to the member opposite -- we're interested in long-term, sustainable economic growth and the creation of permanent jobs in Ontario. That's what grows the economy. That's what helps people. That's what helps retailers in Ontario, not short-term, knee-jerk actions."

    For once in his sorry political career he was right on that day.

  2. OSL:

    Instead of hammering Flaherty about his perceived about face, why don't you discuss Liberal indecision and buffoonery on just about every issue that's come along in the past 20 years: GST, gay marriage, income Libs can't seem to make a long-term steady decision without somehow blaming the Conservatives or changing your minds thirty times before deciding. No wonder Martin is/was Mr. Dithers. Also a Liberal trait: it's always someone else's fault. Try having a backbone on an opinion about something and sticking with it for once. Sheesh!!

  3. Tut, tut, Old School,

    Why not tell the whole story?

    Then Rev. Minister Flaherty was faced with a serious economic slow-down in Ontario following the 9/11 tragedy when he made that statement. He was looking for fiscal measures with highest stimulus effect.

    Just as he is not cutting the GST in this economic climate, he would not have cut it in Nov. 2001.

    The economic climate in 2005/2006 was entirely different. And as I'm sure you remember, federal revenues were in surplus; Canada was not in need of fiscal stimulus.

    Good try though.

  4. uh, larry, seriously?

    -unelected senators (broken promise on day #1)
    -floor crossing
    -income trusts
    -tax cuts (Harper increased income taxes when he first came in, then the income trust taxes, and others)
    -record spending even before the recession
    -record spending on polling and focus groups to tell them what to think
    -fixed election dates
    -cuts to CBC
    -"made in Canada" environmental plan
    -never a deficit (Sept), a surplus (Nov), must have deficits (Dec), small deficits (early Jan), largest deficit ever but the numbers are sound, still on track (April), largest budgetary shortfall ever (May), deficit projection increase 50% to over $50B (May)
    -no recession in Canada (Sep), recession (Nov), depression (Dec), severe recession (Jan), cyclical downturn (Feb), mild economic downturn (March)

    And so very much more.

    It would be laughable if it wasn't costing so many Canadians their jobs.

    You want to go back 20-30 years to pick out a few reversals from former governments? Fine. Those examples I gave are all in three years!

    Is there anything Harper actually stands for? Is there anything he is not making up as he goes along?

  5. Cutting the GST right now would be the quickest way to stimulate the economy, faster than infrastructure dollars by far.
    That's why the UK cut it's sales tax temporarily as part of their stimulus package, and countries like Malaysia are looking at sales tax cuts as the second part to their stimulus.