Canada Tax Cuts

Tax Cuts have become a key campaign issue this week with the Conservatives offering a cut in GST from 7% to 5% in response to the Liberals earlier announcement of income tax cuts.

And yes for those who missed that, the centre-left Liberals are cutting income tax. Most centre-left parties do – in Australia, US and UK – the left parties all support tax cuts. Common sense except for Dr Cullen who says $8 billion is not a large enough surplus.

Anyway why are the Conseratives pledging to cut GST rather than income tax? After all most economists say income taxes are better for the economy as they encourage people to earn more, while GST cuts more encourage people to spend more.

The reason is that the GST is despised in Canada, and I mean despised. This may be hard to comprehend in NZ where we have had GST for almost 20 years and many consumers don’t even realise it is there. But when the COnseratives introduced it in the early 90s the backlash was so servere, this is the main reason they went from around 139 seats to just 2 seats in Parliament.

But it gets better than that. The Liberal Finance Spokesperson campaigned in 1993 on a platform of abolishing GST. And they got elected on that platform, and reneged. It’s still there. And what role does that Finance Spokesperson have today? He is Liberal Prime Minister Paul Martin.

So this is very cunning by the Conservatives. There are dozens of quotes by Paul Martin on how evil and bad GST is. And now the Conservatives have come out announcing they will reduce it, it is impossible for the Liberals to condemn the policy with any credibility.

So in the first week of the campaign, the media are saying the Conservatives have done relatively well, and set the agenda for this week. However they have started a fair way behind and there is seven weeks to go, so they are most definitely still the underdogs.

Hamish McKenzie has a useful summary of the state of play in Canada also.