Walkom On The GST

The T.O. Star's Thomas Walkom thinks Harper's GST cut is a terrific idea, and thinks "left-liberals" shouldn't be criticizing him for it.

The New Democrats say the tax cut favours the rich. Liberal leader Stéphane Dion says it is so odious that, if elected, he might reverse it.

And yet many of these same left-liberals were equally outraged this week by a new study pointing out that the tax system has become less fair since 1990 because (wait for it) governments have been relying too much on regressive sales taxes like the GST.

First, note the clever phrasing: "sales taxes like the GST". These words are all that prevent Walkom from utterly mis-representing the study in question, which 1) does not call for GST cuts and 2) singles out the GST for being unlike these other sales taxes in not contributing to an increase in regressiveness in the Canadian tax system from 1990 on. Author Mark Lee writes:

...an important caveat is that at the bottom of the distribution, the regressive impact of the GST is offset by the GST credit.

Overall there was essentially no change arising from the shift to the GST in 1991. The GST generated net revenues similar to the federal manufacturers sales tax that it replaced...

Okay, Walkom might argue, but the GST is still a regressive tax, and cutting it is still a "small blow for social justice". Well, maybe, but the problem is that cutting a sales tax is the least effective means of getting money into the hands of low income Canadians. The cut has to make it through to the consumer without first getting scooped up by manufacturers, wholesalers, and so forth. And if you want to see an example where this did not happen, just take a look at the Tories first GST cut.

Here's Stats Canada from June of 2006 (emphasis mine):

Since the price changes measured by the CPI take into account the value of the consumption taxes paid by Canadians, this 1% decrease will have an impact on the CPI.A rough estimation of the impact of this reduction on the level of the CPI suggests a decrease in the order of 0.6%.

This estimation is based on the assumption that the entire amount of the decrease will be transferred to consumers and that the industrial structure that underlies the way that prices are determined will remain the same.

And here's Stat's Canada from the very next month (emphasis mine):

On a monthly basis, the CPI increased 0.1% in July. This suggests that price increase pressures were important enough in July to more than compensate for the expected effect of the 1.0% reduction in the GST.The CPI release in The Daily on July 21, 2006, suggested that the CPI could fall by roughly 0.6% following the 1.0% reduction in the GST. Based on a simulation exercise, this estimation rests on the assumption that the entire amount of the decrease is transferred to consumers and that the industrial structure that underlies the way that prices are determined remains the same. In addition, this measure of impact does not take into account the increase in the Federal excise taxes on tobacco products and alcoholic beverages announced by the government.

Clearly, a good portion of the cut went down the rabbit hole long before it got to the consumer.

PS. Mr Walkom suggests at the beginning of his piece that Stephen Harper is not Satan, but I don't understand how he can know that. We won't know that for certain until we can get a cell sample from Stephen's horn.