GST Cut Falls Flat

Here is a new definition of Flat Tax.
A tax cut that lands flat, as in flat on its face.

Last year's GST cut did not stimulate increased consumer spending or the economy and, unlike some other tax cuts, will not pay for itself in the long run, a new analysis has concluded.

"Do tax cuts pay for themselves? Well, certainly the GST reduction didn't," Global Insight said in an analysis Tuesday of the costs and impact of the one-point cut in the sales tax rate by the minority Conservative government to 6% from seven last July.

"The relationship between GST revenues and consumer expenditures reveals no significant evidence of stimulated consumer spending," concluded the analysis, based on Finance Department fiscal reports that run through June 2007 -- the first 12 months since the Harper government carried through on its election promise and cut the GST.

"A cut in almost any other kind of federal government tax would have been more effective in stimulating economic growth and would have resulted in it getting more of the lost revenue back," Dale Orr, the think tank's chief economist, and author of the report, said in an interview.

Among the tax cuts that would be the most effective in stimulating economic activity and boosting future revenues would an income-tax cut, which as well as leaving people with more money to spend, would encourage them to work longer and harder to earn more, Mr. Orr said.

However, he noted that the Conservative government instead raised personal income taxes in its first budget.

"That was done specifically to finance the GST cut," Mr. Orr said.

Insured workers pay GST which was intended to address the national debt, yet we have not received any evidence that all those funds are doing that. Insured workers then pay GST for servicing the national debt, pay income taxes to fund programs and serve the national debt and then workers and employers pay down the national debt yet again through their EI premiums - not voluntary contributions!

VAT (value added tax) and GST (goods and service tax) are two of the fastest growing taxes globally, a new report launched today by PricewaterhouseCoopers demonstrates. The report, Shifting the balance –the evolution of indirect taxes, offers an insight into the growth of indirect taxes and focuses on a number of key themes such as the shift from direct to indirect taxes, barriers to business and the need for reform, litigation, and the use of technology in indirect tax compliance.

It suggests that this could reflect a global trend by governments to focus on the certainty of revenues from VAT/GST and a desire to shift compliance costs from tax authorities to businesses. The report describes how, in light of the evolution of indirect taxation, there is a further challenge not to be forgotten. VAT systems can be regressive in nature and also potentially inflationary. It recommends that governments considering the introduction of such systems to enhance global tax competitiveness, need to bear in mind measures that will ensure a level of welfare for the lower paid individual taxpayers, including the potential for applying reduced tax rates or even zero tax rates for basic goods and services or those supporting other social aims, such as relieving the burden on the elderly or disabled.

SEE

Tax Cuts For The Rich Burden You and Me

Tax Fairness For The Rich

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