Saturday, March 25, 2006

Scrap GST Cut: Sales Tax Expert

Everybody hates the GST, and Stephen Harper is using this sentiment to curry favor without actually helping Canadians. Sales tax expert David Robertson weighs in and shows who really benefits from the GST cut:
According to a new study of the promised one percentage point cut to the GST, some of the biggest beneficiaries of the proposed tax break – which will total an estimated $32 billion over five years – are banks and other financial institutions ($2.6 billion); doctors, dentists and other health professionals ($650 million); and landlords ($970 million).

Other unexpected beneficiaries include hospitals, colleges and universities – nearly $1.3 billion over five years, according to the study. (Hmmm, wonder if they'll consider reducing tuition fees?)

All told, about 17 per cent of Ottawa's GST revenue comes from specific companies and public sector organizations that, unlike most businesses, are unable to pass along all their input costs for a GST exemption.

The Liberal tax cut was aimed at lower income Canadians, but the Conservatives have argued their GST cut is equally helpful. Robertson disagrees:
As he points out, cutting the lowest marginal income tax rate by one per cent and increasing the basic personal exemption, as the Liberals did, is worth $320 a year to most taxpayers.

To get the same bang for your buck with a one percentage point GST cut, you would have to spend at least $32,000 each year on goods and services other than rent or mortgage payments, groceries, prescriptions drugs, tuition, child care, insurance, loan payments and investments, all of which are GST exempt.

Another study has found that the GST cut will cost Ottawa 5.2 billion in lost revenue, substantially more than the 4.5 billion dollar Tory calculation. Are Canadians prepared to entertain deficit spending so that banks can pay less? The problem for the opposition is that the Conservative's GST cut is all about appearance, while the arguments against are more complicated to convey. It is difficult to make the case against cutting a dreaded tax without giving the Conservative's ammunition. Just like the Conservative's childcare plan, the solution is to manipulate the electorate into thinking Tories want to put more money in your pocket.

Despite the fact that the GST cut clearly favors the rich (strange how all Conservative policies tend to slant this way), this battle is one of impressions and in that regard it may be hard to stop. Personally, I have already heard several people speak highly of the GST cut, under the false impression that it is a real tax cut. It will be interesting to see if the opposition is willing to mount a strong challenge to the GST cut and risk public backlash. I would highlight the bank scenario because Canadians are well aware that these institutions are least deserving of further tax cuts.

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