Harper proposes GST cut from 7% to 5%
Good politics, but bad economics.
Although I am generally in favour of tax reduction, this is the wrong place to do it. The GST is a transparent, fair and flat tax. It is a good tool for the government to raise revenue because it doesn't penalize people based on their economic achievements (unlike income tax). In other words, everyone pays at the same rate regardless of whether you make 40K a year or 400K a year. That's a good thing. Furthermore, it is visible. You see it every time you buy something. Another good thing. Unlike income tax, the guesswork is removed.
Now, Harper said that this cut would be intended to stimulate consumption, not investment. Fair. However, on the whole, I think broader, deeper cuts to income taxes would have been a better way to go, and I'm sure most economists would agree.
That being said, Harper said that his personal income tax plan will be forthcoming. I'm looking forward to hearing it. I'm also hopeful that he will propose reforms to capital taxes - those which are second highest in the world next to China. A GST cut, personal cuts and corporate cuts together would do a lot to reduce Canada's declining rate of productivity, and help convince major employers like GM to keep Canadian plants open.
Let's see what he comes up with.
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