Imagine a tax cut that you only get when you buy stuff. The more you spend, the more you get from the tax cut.
Skill testing question: who would benefit more from this tax cut, the poor or the rich?
Well, the rich buy more stuff than the poor. So affluent people will get more cash from this tax cut then low income people will.
You now understand what is wrong with the Conservatives’ plan to cut the GST.
The Conservatives have pledged to focus on five priorities in this Parliament, one of which is “lowering taxes for working Canadians.” Harper plans to support working Canadians by lowering the GST rate from 7% to 6%.
Since this measures is a tax cut that rewards consumption, we had our doubts about how beneficial it would be for “working Canadians” so we crunched the numbers.
We looked at how the Conservative’s tax cuts affect families with lower incomes (a family income under $40,000) vs. high-income families (with family income of over $150,000).
As of 2007, it is estimated that 48.6% of Canadian families will make under $40,000 in family income. This means that a whole lot of families barely make it above the poverty line. Only 5.4% of Canadian families are estimated to have household incomes of $150,000 or more.
Which families does the GST cut help? Lower income families will get an average of about $129. On average, higher income families will get about $907. This is to be expected: the more your consume, the more money you save from a cut in sales tax.
This GST tax cut costs a lot of money: we think about $5.3 billion in 2007. Consider the portion of GST cut which will benefit families. Lower income families will get about 23% of the benefits that flow to families – and remember they are almost half of all Canadian families. The relatively small group of highest income families get 18.3 % of the benefits.
This is a tax cut which disproportionately favours high-income families. For every dollar of this tax cut received by low-income families, over 3 dollars goes to families that are not low-income.
If the Conservatives really wanted to help low-income families, the GST cut would be a silly way to do it. We already have a mechanism to deal with the GST’s impact on low-income people: the GST credit. At a fraction of the cost of a cut in the GST rate, enhancing the GST credit could target low-income people much more effectively.
Over five years, the Canadian government is going to hemorrhage money paying for the GST cut. The Conservatives estimate it will cost $32.3 billion over five years. We (and Don Drummond of the TD bank) think that the GST cut will cost much more.
Expensive tax cuts like this are exactly why there are so many spending cuts lurking in the fineprint of the Conservative electoral platform. We do know they will cut the national child care program and the climate change fund, but at least another $22.5 billion of cuts is yet to be disclosed.
The Conservatives are hoping that we will be so mesmerized with our GST cut that we won’t ask what will be sacrificed to pay for it. And this is the real travesty for low-income Canadians—the small amount of money they will save in GST will be dwarfed by what they lose as child care and other public services bear the brunt of the profligate GST cut.
Sheila Block is Director of Health and Nursing Policy with the Registered Nurses’ Association of Ontario and a CCPA Research Associate. Ellen Russell is the CCPA’s Senior Research Economist.
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Standing Up For Which Families? Who Benefits From the Conservative Tax Cut Promises
