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Share this Story: Opinion: O'Toole's GST holiday, is the Christmas present that our economy needs
Opinion: O'Toole's GST holiday would be the Christmas gift our economy needs. A GST cut would encourage consumers to return to stores, unlocking some personal savings accumulated during the pandemic. Photo by AFP via Getty Images
Article content Conservative leader Erin OToole has the right to promise a GST tax break in December if elected, but he is wrong about why it is necessary.
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Article content Keeping the GST low for a while won't make it more affordable for families and will not reduce inflation. A GST holiday would encourage consumers to spend more. This would provide the economy with a boost that it may need to overcome the headwinds facing the recovery from the resurgent coronavirus as well as economic shocks around the world. Sorry, this video is not loading.
Tap here to view other videos by our team. Refresh your browser or Opinion: O'Toole's GST Holiday is the Christmas gift our economy needs. Back to video All the parties in this election promised that they would continue to borrow money and spend to bring the economy back to its feet. The Liberals' stimulus plan, however, is to keep giving cash transfers to seniors and displaced workers as well as businesses. This approach has a problem because people are not spending the cash but saving it. The household savings rate is now more than 150 billion dollars higher than before the pandemic. This may be beneficial for household balances in the long-term, but it will not get the economy moving right away, when it is needed.
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Article content It's not necessary to be so frugal around Christmas. The economy is at its lowest point, and all spending is good for the recovery. However, the GST gives money to families only if they spend. The GST could be cut to encourage consumers to shop again, which would unlock some of the incredible personal savings that was accumulated during the pandemic. Recession-era sales tax cuts are not a novel idea or a political gimmick. After the 2008-9 financial crisis, the U.K. government made a reduction of sales taxes a central part of its stimulus package. However, several European countries have implemented sales tax cuts to help their economies through the pandemic. Recent research for the Finances of the Nation project showed that sales tax reductions can be very effective. I was interested in what happened in Canada in 2006 when Saskatchewan cut its sales tax rate by 2 percentage points. It is not surprising that tax increases are more common than tax cuts. Prices of taxed goods fell almost immediately by the entire amount of the tax reduction. This means that businesses passed on the tax savings to consumers rather than keeping it.
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Article content and consumers responded. The year following the tax cut saw retail sales rise by five percent in Saskatchewan, compared to other provinces who kept their taxes the same. The GST holiday of Mr. OTooles would be more than the Saskatchewan one and would have a greater impact on consumer spending. More on this Topic Philip Cross. Ignore the scaremongers. Canada's best option to get out of debt is to cut spending. Jack Mintz: The Liberals' Build Back Better slogan without economic growth would not be true. If consumers shift large-ticket purchases into December, the government will lose $2.5 billion in revenue. This revenue loss, whether it is good or bad, is still a small drop in the ocean compared to the government's projected deficit of $166.7 trillion in the current fiscal year. It would be money well-spent if the recovery continues.
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Article content The Conservative proposal is actually too modest. An extended GST holiday would encourage people to spend more and not just shift planned spending from other months into December. The Conservative tax holiday would only apply to retail spending. This excludes accommodation, travel, and other services. It may also not apply to purchases of cars or other large-ticket items that are sold outside the normal retail environment. It's not necessary to be so frugal, especially around Christmas. All spending is good for the recovery, even if the economy is below its potential. The GST holiday should be at least three months long. It should not apply to new homes or taxable purchases that do not require stimulus. Mr. OToole states that he is the man who will lead the way to recovery. We would be on the right track if we took his GST holiday, but let's go a bit further than what he has suggested so far. Michael Smart, an economist at the University of Toronto, is co-director of Finances of the Nation.
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