Thursday, September 10, 2009

The True Cost of the GST-Cut: $15 Billion A Year PLUS Interest

In reviewing news stories relating to the deficit, in particular the long list of broken promises from our Conservative government, I came across an interesting statement in a Montreal Gazette story, it reported that cutting the GST reduced government revenue each year by 15 billion dollars.

The story dated July 6 2009 was written by David Akin and reported economic projections by Kevin Page, the independent Parliamentary Budget Officer; but what was of particular interest was what was written in the middle of the article, it stated:

"The Conservatives, since taking office in 2006, have cut the GST by two percentage points, a move that costs the federal treasury about $15 billion a year."
With our finance minister Jim Flaherty today increasing the projected deficit once again, now to $55.9 Billion, the GST-cut's cost must now include the interest accumulating on that lost revenue's contribution to our national debt.

To put it simply the government lost 15 billion dollars in revenue from the GST reduction and in doing so contributed to increasing our deficit this year by the same amount. In addition this means that the GST-cut now is costing Canadians interest on 15 billion dollars of debt this year, and each year hence.

The reduction in the GST was meant to increase Canadians' spending and therefore spur economic growth; even assuming that the consumption tax cut accomplished this, the two percent reduction's benefit does not outweigh the interest accumulating on the $15 Billion principal that is now a part of our deficit.

Whereas if the GST had not been cut, we would of course still be paying 7% for the tax, but we would not be paying future taxes just to cover the accumulating interest from the debt caused by the lost revenue. If the GST had not been cut, we would of course have lost pennies from our pockets, but not future dollars from our wallets.

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