Canadian Politics: A world of topsey turvey

Today the Conservative party unveiled their plan for tax reform in Canada (if elected of course): a 2% cut in the GST, a value-added tax levied on goods and services. I don't know whether this is a great strategy for the conservatives, but it is an interesting proposal. What is most interesting is that it could be an attempt to beat the NDP in terms of progressiveness. What is also surprising is that the NDP has said that they oppose cutting the GST and would rather cut income taxes.

Do the NDP have any economists working for them at all? In general, value added sales taxes like the GST are very regressive. Since the poor spend a larger percentage of their income on consumables instead of saving, they spend a larger proportion of their income in sales taxes. The rich by comparison save more and pay more sales tax in future (assuming that they spend it in Canada). So really, the proposal to cut the GST is actually quite progressive. By comparison, tinkering with marginal income tax rates is easy for politicians (and hard on the Canada Revenue Agency) but it does not actually change the progressiveness of the system. While the rich pay high marginal tax rates, they can also avoid part of the bill by taking advantage of numerous loopholes; for example, by donating large sums to poltical parties. So, attempts to make the rich pay more taxes usually fail to do so. This all suggests that we should probably actually be moving to a flat tax system and eliminate all the loopholes and tax credits. The progressiveness of the system (which is practically non-existant) would be preserved and Canadians would all benefit from simple income tax returns and save money by spending less on bureaucracy and audits.

R