Hiking the GST is a bad idea supported by a vocal few who can afford to pay higher taxes. It would be bad for the economy and would serve merely to fuel the federal government’s already dangerous spending addiction.It's a bad idea even if marketed as a temporary measure. Because there is nothing so permanent as a temporary tax hike.
Tax hikes for budget balancing is the easy path too often taken by politicians. Compare how often politicians name a program that should be reduced or eliminated versus how often they talk about a tax that should be raised.
The federal government needs more tax revenue like Tiger Woods needs another girlfriend. There’s more than enough already. The problem isn’t that we need more. The problem is not being mindful of what we already have.
To put the argument that “this deficit is only due to a drop in revenue” to the test, today’s level of program spending should be put up against what that level would otherwise be if it had only increased by the combined rates of inflation and population growth – 2.5 per cent. Doing so from a base year of 2003/04 would yield a difference of $65.2 billion today, leaving a surplus of more than $10 billion. A similar analysis solely for the Harper government, from when it came to power in 2006/07, reveals the deficit today would be less than 9 per cent of what it is today; coming in at only $4.9 billion.
Importantly, this much smaller deficit would be truly cyclical, and not structural.
Sure, it will allow balancing the books in 2012/13 without even bothering to slow down the program spending growth. But what will happen a couple years later, when the extra 2 percentage points on the GST result in some $12B in annual surplus? Do you think we'll get the 5% GST back? Or maybe the government will slash income tax instead, to benefit those who save, rather than those who spend? Even that somehow seems unlikely. Most likely we'll be told that it would be more beneficial for us to receive an equivalent amount in extra government programs: McDaycare, "affordable" ghetto housing, subsidized court challenges for special interest and many more. How do you like this kind of a trade-off?
Politicians are great in spending money that's not theirs. If we can't have them confined to zero-based budgeting, at least let's keep them on a tight leash by making it clear that we'll accept no tax hikes. They have the tax base they need to balance the books in 2012, if they agree to cap their operating expenses - and they better do just that.
Update: Quebec is planning to raise the QST to 8.5% on January 1, 2011 to combat the runaway deficit. Any plans to bring it back to 7.5% once the economy catches up? Well, what do you think? How likely is that to happen?
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