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It's
a remarkable show of unanimity on public policy, given
that the responses were from organizations as diverse as
the Fraser Institute, the Canadian Auto Workers, Canadian
Manufacturers & Exporters, Bank of Montreal and the
Halifax-based Atlantic Institute for Market Studies.
Most
economists said the government's priorities should be
cutting personal income and business taxes, especially the
latter.
“There
is an overwhelming consensus amongst economic research
that business taxes are the most economically damaging
taxes and thus should be the federal government's top
priority,” said Niels Veldhuis, director of fiscal
studies at the Fraser Institute in Vancouver.
And
most said point blank that the government's proposed GST
cut is a bad move, one with a negligible effect on the
economic health of the nation that does nothing to boost
productivity.
“In
the modern, global economy, Canada has to do everything it
can to make its workers and companies competitive,” said
Don Drummond, chief economist at Toronto-Dominion Bank.
“The
federal surpluses have offered a golden opportunity to
move forward in a very decisive manner. The GST rate cuts
don't move that agenda forward at all,” Mr. Drummond
said.
The
Conservative government said last week that it plans to
cut a second percentage point from the GST, bringing the
sales tax to 5 per cent, after a one-percentage-point cut
last year.
Mr.
Drummond and others have plenty of ideas about where that
$5-billion could go.
Personal
and corporate income tax reductions, “if properly
structured,” would be one, he said. Another would be
reversing the earlier GST tax cut and shaving every
Canadian's marginal personal income tax rate by two
percentage points.
All
told, 16 of 20 respondents to The Globe's survey called
the government's announcement to cut the GST a bad move,
while two said it was irrelevant and two said it would be
good for the economy.
The
cut may give a small pop to consumer spending, but that's
hardly an area that needs boosting, given the repeated
warnings from the Bank of Canada that the economy is
already running above capacity.
“Cutting
the GST could encourage more consumption at exactly the
wrong time,” said Patricia Croft, chief economist at
investment manager Phillips Hager & North. “Domestic
demand is already very strong and encouraging additional
consumption could make the Bank of Canada's job tougher at
this juncture.”
A
one-point GST reduction adds about 0.3 per cent to
Canada's gross domestic product, “but it's one-time and
there are better ways to do it,” said Sherry Cooper,
chief economist at BMO Nesbitt Burns.
David
Park, chief economist at the Vancouver Board of Trade,
went further, calling the proposed reduction “the worst
tax to cut in the spectrum of federal taxes,” especially
when the Bank of Canada is worried about inflation.
Rather
than throwing fat on a sector that's already on fire, the
government should focus on supporting business investment
in the face of a soaring dollar, a U.S. slowdown and
Canada's gaping non-resource trade deficit, said CAW
economist Jim Stanford, who would focus instead on
expanding the Canada Child Tax Benefit.
Ian
Munro, director of research at the Atlantic Institute,
would also prefer corporate income tax reductions, saying
they would provide the greatest stimulus to growth.
Other
ideas ranged from cutting the capital gains tax to
integrating the GST with provincial sales tax, both of
which should encourage investment.
Source
: Globe and Mail - Canada, dated 24/10/2007
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