GST cut could be po­lit­i­cal gold

The nu­clear op­tion Tories may not be able to re­sist

National Post (Latest Edition) - - FRONT PAGE - John Ivi son in Ottawa

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

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