Given a choice, economists much 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. All these things are good for the economy in the long term.
There is also solid historical evidence that sales taxes do effect consumer behaviour. The introduction of the GST in 1993 depressed retail sales in Canada for months, whereas the one point cuts of the past two years spurred spending.
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.
Still, cutting Nike Air Max Excellerate 4 Grey the GST rates high on Global Insight's scorecard of possible stimulus measures, Nike Air Max 90 Ultra Moire Holographic For Sale
ahead of income taxes reductions or major infrastructure projects.
A spokesman for Finance Minister Jim Flaherty said as of the new year Ottawa will have $6 billion in the bank to devote for infrastructure projects, plus any new money announced in the budget, but would not comment on whether Ottawa is considering another GST cut.
The problem with large scale construction projects, he says, is they can take many months and perhaps even years to get off the drawing board. By the time they are ready to go, the economy will likely have recovered and the stimulus is no longer needed.
Topping the list on Orr's scorecard, and that of many economists, is accelerating already approved small scale infrastructure construction projects for such things as roads and bridges.
But he wonders if any tax cut income or sales will be effective at a time Canadians are fearful of whether they will have jobs in the future. Another drawback, he adds, is that a portion of purchases will go on imported goods, meaning the tax cut goes to stimulate another country's production.
Another drawback is that in the crisis atmosphere rush to approve, governments can easily make errors and waste large portions of the stimulus.
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.
services tax be just the elixir needed to revive Canada's economy?
But Orr says, the point of fiscal stimulus is to boost the economy now when it most needs it, not to build up the fundamentals of a strong economy for the future. government sent cheques to households in a failed attempt to get them back into the mall.
Cut to GST makes a comeback as possible cure to ailing economy
Most economists say in order move an economy, fiscal stimulus needs to be at least one per cent of the value of the country's annual gross domestic product. For Canada, that would be about $16 billion.
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."
Could a third cut to the hated goods and Air Max 90 Womens All Black
Reducing consumption taxes does little except boost spending.
Economists generally 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.
"It meets the three T's requirement of timely, targeted and temporary," agrees Sal Guatieri, an economist with BMO Capital Markets, "so it could help."
said the government is planning a significant stimulus but not as large as the US$500 billion plus package being discussed in the United States.
"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."
"All suggestions are welcome and all suggestions are considered," said Chisholm Pothier, noting that Flaherty is in the midst of budget consultations.
In a recent CBC interview, Harper Red Air Max 90
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