While I do not agree with the Liberals that it would be better to cut income taxes than the GST the GST cut pales in comparison with the cut to corporate taxes of 60 billion over 5 years. This cut takes 12 billion a year out of govt. coffers. The GST cut does benefit the wealthy more than the poor but only because the poor spend less per person. However, the tax is relatively less painful to the rich than poor and is in effect regressive. Each pays the same rate regardless of income.
Harper is trying to dampen public expectation for any increased spending on social programs in suggesting that there will be a slowdown in the economy and thus tax revenue. Of course the tax cuts of every type just make the situation worse. What Harper and his crew want.
One last trim: 5% GST kicks in
TheStar.com - Canada - One last trim: 5% GST kicks in
MICHAEL STUPARYK/TORONTO STAR
Prime Minister Stephen Harper and Finance Minister Jim Flaherty remind consumers of the new GST rate. January 01, 2008
Queen's Park Bureau
Canadians woke up today to their last GST cut for some time as the federal government shuns new tax relief and spending plans until economic storm clouds lift, Prime Minister Stephen Harper says.
"We will be extremely cautious in the year to come," Harper pledged yesterday at a Mississauga electronics store where he reminded consumers that the GST would drop one percentage point at midnight to 5 per cent, fulfilling a campaign promise made two years ago.
"We are not going to undertake any long-run spending or tax reduction initiatives unless we believe they are affordable on a long-term basis," added Harper, whose minority government could soon be facing an election.
His approach appears increasingly at odds with the opposition Liberals and New Democrats as the House of Commons prepares to return Jan. 28, with a federal budget due in February or March.
The Liberals want more money earmarked for the "poverty challenge" that is holding back many Canadians and for crumbling infrastructure, such as municipal transit systems, said Markham MP and finance critic John McCallum.
"We'll look at the budget," added McCallum, a former Royal Bank chief economist whose party prefers income tax cuts to trimming the GST. "We may vote against it if it's a bad budget."
The GST cut means Canadians will save "a few dollars off a stereo" but the money could be better put to use helping the poor, or improving funding for municipalities, child care and the environment, said NDP Leader Jack Layton.
New taxes being imposed by the City of Toronto this year on vehicle registrations and real estate transactions are proof "the federal government is not being responsible on the needs of cities," he added.
The Conservatives hold 125 of the Commons' 308 seats. The Liberals have 96, the Bloc Québécois 49 and the NDP 30. There are four independent MPs and four vacancies.
Harper and Finance Minister Jim Flaherty brushed aside criticisms of the cut to the GST that will cost the federal treasury about $6 billion in revenue this year, on top of the $6 billion in relief to consumers when Harper previously trimmed the tax from 7 per cent to 6 per cent in July 2006.
The Prime Minister boasted the lower GST will save consumers "hundreds of dollars per year on day-to-day purchases and hundreds more for a new car or thousands more on a new home."
Critics say the GST cut benefits the wealthy more than the poor, but retailers, hit hard by a surge in the Canadian dollar that has rekindled cross-border shopping, have welcomed the change.
Still, Canadians should not expect the GST, which was brought in by former Progressive Conservative prime minister Brian Mulroney in 1990, to keep falling, Harper cautioned, standing in front of a wall of television sets displaying the 5 per cent GST message.
"We are not anticipating further reductions to the GST. In the future, if we reduce taxes they may be in a different direction."
McCallum accused Harper of sending a confusing message to consumers by combining talk of a tax cut with a warning the economy could be headed for trouble.
"This is clearly a triumph of gimmickry over good public policy to announce the GST cut in a store and tell us the cupboard is bare," said McCallum.
"I think they're trying to downplay expectations and then people will be positively surprised."
With the U.S. economy weakening because of a sub-prime mortgage crisis that is hurting the housing sector – and risks that slower demand south of the border could hurt exports of Canadian-made goods – Harper and Flaherty have been telegraphing that they'll have less room to manoeuvre in the federal budget.
Harper said his plan is to "shelter, as best we can, Canadians from any fallout of global economic problems."
McCallum said the government is overstating the risks because many experts expect the Canadian economy to grow by up to 2.5 per cent this year, which would leave room for spending and tax initiatives.
The warnings from Ottawa suggest it was "reckless" for Harper and Flaherty to announce $60 billion in corporate tax cuts over the next five years in their October mini-budget, Layton charged.
Effective today, the general federal corporate income tax rate falls to 19.5 per cent from the previous rate of 22.12 per cent as part of a plan to lower the rate to 15 per cent by 2012. The small business tax rate today falls to 11 per cent from 12 per cent, one year earlier than originally scheduled.
In other tax changes taking effect today, the Ontario government is eliminating the capital tax for businesses whose major focus is in manufacturing or the resource sector, and increasing the film, television and production tax credit rate to attract more TV and movie production.