GST cut could be political gold
The nuclear option Tories may not be able to resist
If the definition of insanity is doing the same thing over and over again, and expecting different results, the definition of sanity must be doing the same thing repeatedly and expecting the same result.
To that end, what would be the most sane course for a Conservative government that has just found itself outmanoeuvred by the Liberals when it comes to cutting taxes? To cut taxes further, of course. For a party that was elected in 2006, after promising to cut the reviled goods and services tax by two percentage points, what could possibly have more resonance than pledging to trim the GST by another point? Conservative sources suggest the measure has been discussed internally, though it’s not clear that any decision has been taken.
Joe Oliver, the finance minister, has said a Conservative government would cut more taxes if re-elected. Speaking in Toronto last week, he was asked if federal taxes were now as low as they can go.
“I think we could do more,” he said, pointing out that debtservicing costs will decline as a percentage of expenditures in coming years.
He also said the fall in the price of oil had stripped “six or seven billion dollars” from government revenues, forcing the Conservatives to “delay” other measures.
Coincidentally, or perhaps not, a single point cut in the goods and services tax would cost $7 billion.
The Conservatives have already cut the GST by two percentage points – from seven to six to five – at a cost of $14 billion every year in forgone tax revenue. The move was widely hailed as being terrible economically but genius politically, firmly establishing the Tories as the party of tax cuts.
Sources suggest this lesson has not been forgotten and there will be “surprises” in the forthcoming Conservative platform.
It would be a nuclear option for the Conservatives, a move that the Liberals and New Democrats likely could not afford to match.
The fiscal reality is the Conservatives can’t really afford to lose another $7 billion in tax revenue either. The recent budget forecast cumulative surpluses of just $13 billion over the next five years, plus a further $7 billion in “rainy day” contingency funds.
But the lure of trimming the GST — the least complicated, most easily communicated tax cut — is like a siren song. Advocates say the money would be found elsewhere if necessary — by squeezing the public service further, tapping the $5 billion in annual “lapsed” spending or, perhaps, by repealing some tax credits already in place.
In the House of Commons two weeks ago, Stephen Harper and Justin Trudeau went blow for blow with two competing visions of Canada’s fiscal future.
Trudeau attacked income splitting and the tax-free savings account as giveaways to the rich. Harper said his tax policy had “helped every single Canadian family.”
The Liberal leader responded by saying “benefiting every single family is not what is fair. What is fair is giving help to those who need it most.”
His party’s child tax benefit attempts to do just that, targeting lower-income families with more benefits — the base is $6,400 per child under six, compared with about $5,900 for the Conservative plan. The extra benefit is paid for by clawing back payments from higher earners.
A GST cut would fit perfectly with the Conservative narrative. It’s a tried and tested vote winner. When Darrell Dexter’s New Democratic government in Nova Scotia attempted to take up the space vacated by Ottawa by raising the harmonized sales tax by two points, voters promptly showed it the door.
Economists would complain that income tax cuts are more efficient since they encourage saving and future consumption.
The Liberals would argue cutting consumption taxes are unfair, since the rich buy more and would save more.
But voters tend not to believe politicians who make vague promises about making them better off. A GST cut is transparent and would benefit all Canadians, including lowincome earners and those who don’t pay income tax. People see the impact every day on their bills and don’t much care that just about the only thing economists agree on is cutting the GST is unproductive, inefficient and unfair.
Nobody inside the Conservative party is confirming another GST cut is part of the re-election plan.
But it would be consistent with Harper’s election strategy over the past decade. And while consistency may be the last refuge of the unimaginative, à la Oscar Wilde, it is equally true that it breeds trust and success.
A GST cut would fit perfectly with the Conservative narrative