Wednesday, March 15, 2006

McCallum on the GST cut

Liberal finance critic John McCallum has what he probably imagines to be a scathing critique of the government plan to cut the GST in today's National Post. He says all the right things about the economics of tax cuts.

I suspect that -- with the exception of the Prime Minister himself -- Canada's economists all believe the Conservatives' proposed GST cut, financed by reversing the former Liberal government's income tax cut, is anti-growth.

The reason this is correct is that a GST cut provides no incentive for individuals to save or to invest in their further education and training. An income tax cut, on the other hand, is good for productivity and growth because it generates additional investment in both equipment and skills. As a result, people will not necessarily work more, but they will work smarter. That's why a GST cut financed by higher income tax is anti-growth.

On this, McCallum is right. Cutting income taxes, as a general rule, is better for the economy. While McCallum speaks eloquently about productivity and incentives, his own party got it completely wrong. The liberal plan to cut income taxes was directed at the bottom tax bracket, and would save taxpayers about the same amount as the GST cut. Problem is, it would do nothing to boost productivity, incent savings and generate investment. In order to achieve that goal, you must cut the top brackets.

And a critique of the GST cut wouldn't be complete without invoking some sort of class warfare.
The Liberal income tax cut, by contrast, is much more focused on lower and middle income Canadians. No single individual, no matter how rich, saves more than $359 per year under our income-tax reduction plan. By contrast, with a 1% GST cut, if you buy a Porsche for $100,000, you save $1,000 in GST with that one purchase alone.

Yes, the GST cut will only help those conservative wealthy elites, leaving the rest of us in the cold working for chunks of coal.

Neither the conservative nor the liberal tax cuts are good for increasing productivity or growing the economy, but both are good at saving tax payers a few hundred bucks. The best thing the government could do is keep the liberal plan AND the GST cut. Now there's something we can get behind.

McCallum talks a good game about productivity, but his party failed to walk that talk when they were in power for however many years. That's part of the reason he's sniping from the sidelines.


Bodhidharma said...

Yes, the effect of giving 10% of the population a tax break has more effect then giving the majority a tax break.
Your logic astounds me. What next we should cut our taxes to 1% then the Bill gates' of the might drop a few pennies our way. Oh please sir, can you spare a dime.

David MacLean said...

McCallum and I agree, cut the top rates, cut taxes on dividends, you'll have a stronger economy. More jobs and better wages for us common folk.

But we'll take a tax cut any way we can get it.

Ronnie Raygun said...

Supply-side economics doesn't work

R.B Harper said...

Well Chubby what u say ?

Shawn said...

Some astounding logic posted here by the bright stars of the left. Dazzling insight and irrefutable facts as always.

David MacLean said...

For the record, CTF policy on income taxes is to increase the basic personal exemption, which would benefit low income earners the most. Increasing the exemption would remove thousands of low-income earners from the tax rolls all together.

Try to keep it constructive guys.

Anonymous said...

When is the gst cut effective

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