As you've probably heard, Conservative Party leader Stephen Harper is proposing a 2% reduction in the GST. He'd cut 1% immediately, and another point in five years (the same length, not coincidentally, as his party's potential term in office).
There appears to be some
debate around the CPC's math:
Liberals argued that the first-year savings would be closer to $250, basing
their claims on Statistics Canada numbers that indicate a typical family earning
$60,000 makes taxable purchases worth about $25,000 a year.
Such a family would have to spend upwards of $40,000 in order to realize
$400 in savings in the first year - a number that's not unreasonable, the
Conservatives countered.
I'm no economist. I'm the farthest thing from one. In fact, if Vancouver was
an economist, I'd be Colombo, Sri Lanka.
I'd thought it would be beneficial, then, to gather as many economists' opinions
as I could. These will probably initially come from the media, but I'll keep
an eye out in the blogosphere for more opinions. If you are or know an economist,
please email me an opinion. This is going to be a long post, so if you're not
interested, bail out while we're close to the ground. [more]
Economists in Favour of Cutting the GST
This CBC (a left-leaning organization, to be sure) article cites
John Williamson, head of the Canadian
Taxpayers Federation, a right wing organization. The link on Williamson's
name goes to his bio, which fails to describe him as an economist. I'm not sure
what makes one an economist, so we'll give him the benefit of the doubt:
But John Williamson, head of the Canadian Taxpayers Federation, came to Harper's
defence. "I think it's a fine idea," Williamson said of Harper's
plan. " A lot of economists are suggesting that is it an unacceptable
tax cut and I don't think anything could be further from the truth."
He said economists are evaluating the Conservatives' tax plan differently
than the Liberals' tax plan. Williamson said that when the Liberal plan came
out to reduce personal income taxes, there was no talk among economists about
whether their specific proposals were the best ideas.
"They are looking at the Conservative plan at what is the best tax cut
measure and they are not doing the same for the Liberal tax cut plan."
He agreed, though, that the preference is to cut income taxes, but added
he is waiting to see more tax cut proposals from the Conservatives.
Additionally, Mr.
Harper himself is an economist, so he counts.
This one's a little ambiguous, but Finn Poschmann of the C.D. Howe Institute offered this:
Finn Poschmann said he could only endorse the GST reduction if the Conservatives follow up with coherent changes to other taxes, and transfers to provinces.
This report argues that modifying the GST and/or the GST credit is a good option to help Canada's poor. I was unable to find bios for the report's authors, Andrew Mitchell and Richard Shillington, though they seem to be advocates for anti-poverty and social change issues.
Consumption taxes make up the largest part of the taxes paid by low-income people, with income taxes and social insurance contributions a distant second and third place. Changes to the income tax system will have limited benefits for low-income families. It is logical to look for changes in the consumption tax regime if the goal is to deliver benefits to low-income Canadians.
However, it would require much larger increases in the GST credit to deliver substantial benefits to low-income Canadians, and to offset the heavy consumption taxes they pay. Also, even though the GST credit was the option that delivered the highest proportion of benefits to low-income people it is important to recognise that a large increase in the credit would raise the income level at which families receive some benefit.
Economists Opposed to Cutting the GST
From Canoe.ca,
we find Herbert
Grubel's opinion:
"It may be good politics, but it's really dumb economics," said
Finance Minister Ralph Goodale, borrowing the sentiments of economist Herbert
Grubel, a senior fellow at the right-wing Fraser Institute and a former Reform
MP.
Grubel and Harper, also a trained economist, were once caucus colleagues.
Grubel told the Vancouver Sun last month that "cutting the GST rather
than business or personal income taxes may be good politics, but it is definitely
very bad economics."
Jason
Clemens and Niels
Veldhuis are colleagues of Herbert Grubel at the Fraser Institute. They've
written a
commentary with the heart-racing title "Cuts taxes that count: Canadians
would benefit far more from reductions in capital-based taxes and personal income
taxes than from consumption tax cuts". Here's the conclusion:
We agree that Canadians would benefit enormously from tax relief. However,
we disagree with those that gravitate toward politically expedient tax relief
in place of more economically productive tax relief. In addition, the evidence
based on incentives, differing societal costs of taxes, competitiveness and
the ability of tax relief to constrain government all lead to the same conclusion:
reduce business taxes, taxes on investment and middle- and upper-income personal
income tax rates while increasing our use of consumption taxes such as the
GST.
Christopher Ragan
is an economist at McGill University. He
says:
"Stupid, stupid, stupid, stupid," said Christopher Ragan, a McGill
University economist who favours the Conservatives. He said people may like
it because "it's the tax people love to hate."
Mike
Veall teaches at McMaster (I note he's also popular
with his students). He says (same link as previous article):
"I believe it's a poor idea," said economist Mike Veal of McMaster
University in Hamilton. He said most economists would choose an income tax
cut...
"One per cent on a car is fair amount of money," said Veall. "If
you buying a chocolate bar then we're literally talking about a penny."
He said the GST makes a good target for politicians because it's in front
of the taxpayer every day.
Jim Davies is
an economics prof at the University of Western Ontario. He says (same link as
previous article):
"Most serious work done by economists who specialize in public finance
indicates that the GST is a more efficient tax source than the income tax,"
he said. "If the income tax cut is designed properly it can provide similar
benefit to lower-income taxpayers."
Benjamin
Alarie is at the University of Toronto (same link as above):
Benjamin Alarie agreed that an income tax cut is the right route if the idea
is to help lower-income people. "The move to increase the personal exemption
of the income tax, if the concern is to help low-income Canadians particularly,
that would be a nice way to do it," Alarie said.
Paul Sommerville is an economist who also happens to be running for the NDP in St. Paul. Thus, his comments ought to be taken with a grain of salt:
I think that Stephen Harper’s decision to the cut the GST is the height of fiscal irresponsibility (please see my blog, "Two Canadian Columnists I Like", 21 November 2005). First, it will make the tax system less efficient. Harper’s proposal, once fully implemented, will increase the cost of collecting each GST generated tax dollar by almost 30%.
Second, it will entrench a bias in our tax system towards consumption instead of savings and investment. With an ageing population, fraying urban centres, and huge competitive challenges posed by the new technologies of the global economy, Canada needs more savings and investment, not consumption.
Robin Somerville of the Centre for Spatial Economics says:
Of all taxes we've got, the GST is least evil.
Undecided or No Preference Indicated
This article
doesn't clearly state Robin
Boadway's opinion--he just has an alternative strategy:
Robin Boadway, a Queen's University economist, said there is another way
to help low-income earners, by increasing the refundable GST tax credit. Boadway
suggested the Conservatives are actually looking for way to cut government
revenue and thus spending, with an eye to reducing the overall size of the
federal government and bolster the provinces.
Kul Bhatia is
another economist at the University of Western Ontario (article same as above):
Kul Bhatia said it looks like Harper was driven to cut the GST because the
Liberals had already taken the income tax cuts. Bhatia said he doesn't like
tinkering with taxes at election time, especially with a tax like the GST,
which was carefully tuned when it was brought in to balance income with tax
credits for the poor...
The Conservatives say, though, that the cut would encourage people to spend
more, providing extra GST revenue to make up the shortfall. Bhatia called
that claim "tenuous" and said he'd like to see what the economic
models say.
Conclusion
Obviously I'm in no position to rate the quality of these economists. Or rather,
I'm unwilling to spend the time researching opinions of their relative merit.
So far, though, there seems to be a strong case against cutting the GST. If
anybody finds any further economists' opinions on either side of this issue,
please pass them along.
I love the 
Last night, we had the annual Studio Christmas party. There are five businesses in our huge open-plan office, and they all pitch in for a big Yuletide bash. It ran from 5:00pm to about 11:00pm, but being a Christmas party we seemed to have three sets of guests that arrived and departed throughout the evening.
On a mailing list I'm on, there's been some discussions of a particular business strategy. I didn't know, but this is the business model of 
As you may have heard, there's 
In the mid-nineties, I can remember channel surfing and occasionally encountering a stylish cartoon featuring an impossibly thin female assassin with crazy hair. It was called "Aeon Flux", and has been made into 
This afternoon I watched 
I never really understood the meaning of the phrase 'exposed skin' until today.
