And so begin the great debate of income vs. consumption taxes. Of course textbook economists will tell you that a broad based income tax cut is better than a consumption tax cut because income tax relief spurs savings which is invested and funds innovation and prosperity. It is an argument that I find very compelling.
So if I had to choose between a broad based income tax cut or a reduction in the GST I would choose a broad based income tax cut. But, of course, this is not the choice we have. The choice is between income tax relief for low income Canadians now or a 1% reduction in the GST now - with further promised reductions of either down the road. An income tax cut to low income will do little to spur national prosperity because this segment of the population are not big savers anyway.
Let me put it another way. Remember the Toronto '96 Olympic bid.? People on the left (Bread not Circuses for example) argued that we should invest this money into housing programs and feeding the poor instead of building sports venues. Since we didn't get the Olympics billions were spent on the homeless, right? Give your head a shake. People for the Olympics argued that it would spur investment into fundamental infrastructure such as improved roads and a transit link to Pearson Airport. The pure economists on the right argued that if we needed such infrastructure we should just build it and not waste our money on the other Olympic infrastructure. That's quite a train they built out to Pearson isn't it?
What I mean to say is the tax relief for the upper-middle to upper class, the one that would actually spur productivity improvements, isn't even on the table. It is like solving the homeless problem or building a train to Pearson, both good ideas but not political palatable. Similarly the only possible broad based tax cut that people would accept is a reduction in the GST.
So the income vs consumption tax argument is actually a choice between a pure economic theory that would be universally decried as neo-conservative American-style tax cuts (that therefore would never be offered) or an actual cut in the GST. Given those choices I will take the cut in the GST thank you very much.
