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Winnipeg Free Press - PRINT EDITION

Economists hop aboard GST-cutting bandwagon

By: Julian Beltrame

Posted: 12/11/2008 1:00 AM | Comments: 0 (including replies)

OTTAWA -- Could a third cut to the goods and services tax be just the elixir needed to revive Canada's economy?

Many economists panned the Stephen Harper government for twice trimming the GST in its first mandate, but that was partly because the cuts were made in good times.

Now that the Bank of Canada has officially said the country has entered a recession, some economists are giving more respect to the idea once derided as "a political gimmick."

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In a report to be released Thursday, Dale Orr of IHS Global Insight gives relatively high marks to a third reduction of the GST as a potential measure for the government when it introduces what Harper calls a "significant stimulus package" package in the Jan. 27 budget.

"The GST has some real good qualities as a form of fiscal stimulus," he says. "It can be timely in its impact, it is targeted on consumption and only works if people buy things, and in theory you can remove it, although politically that can be problematic."

Given a choice, economists prefer governments cut personal and business income tax because they create incentives on individuals to work and invest, and on businesses to modernize, buy new equipment and expand.

Reducing consumption taxes does little except boost spending.

According to Statistics Canada, retail sales surged 1.5 per cent in January following the introduction of the latest GST cut, which went into effect on New Year's Day. The number of passenger cars sold in the month jumped by a staggering 16.2 per cent compared with December 2007.

Topping the list on Orr's scorecard, is accelerating already approved small-scale infrastructure projects.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition December 11, 2008 A8

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