While
tax reduction sounds like a positive thing, most
economists dismiss the GST reduction as a political
gimmick that does little to spur economic growth or
competitiveness. They have calculated that this could
buy about one pizza a month for the average consumer.
However, that money would have gone a long way to
helping municipalities deal with the effects of
provincial downloads and the increased demands of an
expanding economy.
In
the early 1990s the federal government transferred a
significant portion of its operating deficit to
provinces and territories by drastically cutting
transfer payments. In response, the provincial
government transferred part of its operating deficit to
municipalities by downloading the cost for programs such
as welfare, social housing, ambulance services, and
5,000 kilometres of provincial highways and related
bridges. Since then, as Canada's economy has grown, so
too have federal and provincial government revenues, and
surpluses, in considerable part through corporate tax,
sales tax and income tax, all of which reflect
purchasing power for goods and services.
The
federal government is giving the one-per-cent reduction
in GST directly to the consumer with the rationale that
it will increase individual spending power. But this
means that benefits are fragmented, relative to
individual spending (you have to spend money to get any
benefit), and by no means does it affect everyone
equally, since those who can spend the most will derive
the greatest benefit (e.g. there is a $0.50 reduction on
a $50 purchase and a $500 reduction on a $50,000
purchase). Increased consumer spending also carries
increased tax revenue to both the federal and provincial
governments.
A
further issue that attracts little attention is the cost
to businesses for implementation of the tax reduction,
which requires business owners, who must act as tax
collectors, to once again change their sales, billing,
purchasing and accounting processes. Following the GST
reduction in July 2006, it was estimated that the costs
to the average business for accounting, invoicing, cash
register adjustments and signage, was in the
neighbourhood of $500. For the roughly 1,600 businesses
in Timmins, that represents a cost of about $800,000.
Meanwhile,
it is in our municipalities that the real growth occurs.
Here we struggle to attract and retain businesses, new
investment and skilled workers, and then must finance
the increase in demand for services and expansion of
infrastructure that result from economic growth.
However, municipalities do not have access to a source
of revenue that grows as the economy grows. Their
revenues, for the most part, come from property taxes,
user fees, and water and sewer rates. So every year at
budget time, they face the same challenge of limiting
the burden to residents while providing better levels of
service. They cannot attract new business and grow the
labour force with soaring property taxes, but neither
can they expect to enable economic growth with crumbling
infrastructure and limited services.
In
June 2007, the Federation of Canadian Municipalities
adopted a resolution calling on the federal government
to transfer one cent of the GST to municipal governments
so they could invest in the future prosperity of their
communities and prevent additional tax increases at the
municipal level. The idea was that for every dollar
someone spends for goods and services, one cent would go
back to the community where he/she works, lives and
plays. Everyone benefits equally.
This
transfer to the municipality would have helped to fund
the key services and programs that affect people's
everyday lives - better roads, bridges and transit;
police, fire and paramedic services; waste management
and recycling; sewer and water plants - and at the same
time it would have helped to drive the local economy and
attract more businesses and skilled workers.
Apparently
the federal government didn't see it that way.
