By Tyler Wolfe
Stephen Harper doesn’t care about black . . . figures. Last week, Harper publicly defended his government’s decision to reduce the Goods and Services Tax from its initial seven per cent to five per cent as a crucial measure to stimulate growth in our suffering economy. This statement was in response to criticism of the GST cut levelled against the Conservatives by former Bank of Canada governor David Dodge. Harper’s response, though expected, is like the denial of a child with his hand in the cookie jar. The decision to cut the GST was little more than a political gimmick– one that has had a role to play in the accumulation of a projected $34 billion deficit for the current fiscal year– and Harper’s continued defence of the cut is a stubborn refusal to accept this reality.
The reduction in the GST will cost the federal coffers an estimated $12 billion to $14 billion annually and, while we would still be in red figures without this consumption tax cut, this is money that could be put to better use in these dire economic times. It is unlikely that Harper would have pushed forward with the GST reduction had he foreseen the impending shit-kicking of the market ominously looming. That Harper was oblivious to the threat is no more his fault than any of the other world leaders who were equally ill-prepared.
Where Harper’s government can be faulted, though, is in its willingness to toy with the GST revenue for short-term political gain. To suggest that there was a more prominent strategic motive for cutting the GST than to buy votes is pure folly. When the decision was made, the federal government was afloat with cash and the loss of GST revenue seemed a worthwhile compromise to win voters. Now that the surpluses have gone dry and our economy is reeling, Harper’s irresponsible election promise has proved damaging.
Harper’s claim that the GST cut is crucial for spurring economic growth is at odds with Dodge, economists from the Canada West Foundation, CD Howe Institute and the Canadian Chamber of Commerce, among others. Many of these groups suggest a reduction in income tax would have been a better alternative to the reduction of the GST. It is estimated that a one per cent reduction in the GST will save the average Canadian household $250 per year; not exactly the type of financial windfall that’s going to convince consumers to head to the stores and fuel the economy.
The primary objective of the GST reduction was political, not economic. The unwillingness of the prime minister to acknowledge this failed policy demonstrates his inability to make the tough decisions his position requires. To raise the GST would be a difficult decision to make, but probably the right one. Instead, Harper has stuck his head in the sand and is waiting for the crisis to pass. While he may not actually be adverse to black figures, Harper’s air of infallibility will hamper his efforts to return the books to the black.