Canada - Grits won't topple government over GST cut: Dion

The federal Liberals won't topple the minority Conservative government even if it cuts the GST to five per cent in the fall economic update, Stephane Dion said Wednesday.

The Liberal leader was responding to growing speculation that Finance Minister Jim Flaherty will include the poison pill of an early GST cut in his economic update, expected in the next two weeks.

Dion has said he wouldn't roll back the first percentage point cut to the GST, included in Flaherty's first budget. But he has been vehemently opposed to shaving another point off the tax, contending it would be bad for the economy.

The sales tax reduction pledge proved popular in the last federal campaign. And following through on the second cut is seen in Tory circles as politically advantageous: It will either trigger an immediate election, if Liberals and other opposition parties oppose it, or serve as a very public way of humiliating the Grits and driving down their poll numbers.

"If Canadians didn't want an election last week, I don't think they will want one next week,'' said Dion when asked how he would react to a GST cut.

"It means we say when the time will come we'll offer a package of tax cuts that will be much better than what the Conservative government has shown until now. Especially, we will decrease the income tax that has been increased by this Conservative government.''

While originally talking down the possibility of introducing major tax initiatives in the fall economic update, Flaherty has been coy on the issue of late and officials in his office will not rule out the possibility.

And Flaherty hinted Wednesday in the Commons that he's looking for ways to help consumers, especially with Christmas only two months away.

"The Leader of the Opposition has said it (the GST cut) is squandering taxpayers' money. He said it is wasteful.''

Flaherty said the government is committed to lowering prices for Canadian consumers.

"We said we would. We are going to.''

On Tuesday, the finance minister met with several major retailers in his office to urge them to bring down prices for Christmas to reflect the stronger purchasing power of the dollar. He met with reporters later in front of a Tory blue background with the slogan, "Standing up for Consumers.''

The government has repeatedly said it intends to lower the GST to five per cent by 2011, but in last week's throne speech the government reiterated the promise without mentioning a date.

And with the Liberals in disarray, many believe the Conservatives are seeking ways to engineer their own defeat so they can campaign on a popular issue while the economy is still strong and before an expected downturn early next year.

While the vast majority of economists believe an income tax cut would be better for the economy, Dale Orr of Global Insight Canada believes the criticism would be muted if Flaherty were able to parlay the GST cut into greater sales tax harmonization with the provinces.

"If the cut to the GST is the price to bring Ontario and British Columbia into harmonization, it would be worth it,'' he said.

A cut to the GST makes it easier for non-participating provinces to come on board because the broader federal tax base gives them increased revenues without hiking provincial sales taxes.

Flaherty has made it clear that the government has the fiscal manoeuvrability for significant, broad-based tax cuts.

His department has said revenues are so strong this fiscal year that already the government has amassed a $7.8-billion surplus for the first four months, leading some to forecast an annual windfall of about $20 billion. Cutting the GST by an additional percentage point is expected to eat up about $5 billion of the surplus.

If Liberals don't vote against a GST cut, Tories believe that will confirm in the public's mind that the Grits are unwilling to stand on principle if it means forcing an election. Liberals are already squirming over Dion's decision to abstain on the throne speech.

"Nothing makes people more cynical about politics than when parties don't do what they say, don't stand up for what they believe,'' NDP leader Jack Layton gloated Wednesday, prior to voting against the government's throne speech.

"We'll be standing up proud of it and very directly challenging the Harper government.''