Good politics sometimes makes bad policy

GST cut will go over well with Canadians, but lower income tax is better idea

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The Gazette, Wednesday, October 31, 2007

There is a saying that good policy makes bad politics. Well, sometimes good politics makes bad policy.

Consider yesterday's cut to the GST, fulfilling a Tory campaign promise to reduce it from seven per cent to six per cent and finally to five per cent.

The cost to the treasury, $5 billion, is easily affordable to a government that's awash in cash, and looking at a $15-billion surplus, with plenty of money left over for tax cuts in the 2008 budget.

But there was no need to rush implementation of the second stage, since the Conservatives promised to complete the GST cut within five years, not two.

The second GST cut was itself part of a fall economic statement that was moved up at least three weeks from the normal date at the end of November. And since Jim Flaherty couldn't get all-party consent to make the statement in the House, he made it elsewhere after markets closed yesterday.

Not that it would have moved markets. And not that it was exactly a well-kept secret. The Conservatives have learned from Paul Martin's Liberal reign at finance that when good news is leaked it becomes a two-day story.

Why the rush? Well, in getting out good news yesterday, Flaherty pre-empted the first anniversary of his trick-or-treat announcement a year ago on Halloween, when he broke a Conservative promise to protect the favoured tax treatment of income trusts. Good news trumps bad news.

Then, the Conservatives are giving the opposition one more opportunity to defeat the minority government, and to bring it down over a tax cut that will put money in the pockets of every Canadian consumer.

The GST cut comes on Jan. 1 just after the Christmas shopping season. Ho-ho-ho.

Who can be against that?

Well, the Liberals and the NDP, to name two opposition parties. And the Bloc, which would vote with them to force a December election.

The NDP wants new investments, read, new program spending, not tax cuts.

The Liberals are opposed to a cut in the GST. Stéphane Dion said so just the other day. He favours personal income-tax cuts and corporate tax cuts. They're coming, too, in the budget next February, but that's another story.

How's that? The Liberals are the party that ferociously opposed the GST when the Mulroney government brought it in back in 1990. Remember their noisemakers in the Senate? The Liberals are the party whose former leader, Jean Chrétien, once pledged to "axe the tax" and then used it to help balance the budget in 1997.

And now Dion opposes the GST cut because most economists think it's a bad idea. They're not wrong about that, and neither is he.

For one thing, an economy that doesn't need any more stimulation is about to get some. For another, personal and corporate tax cuts lead to more investments rather than more spending. Economists know this. Stephen Harper, who has a master's degree in economics, also knows it. But in the faculty of arts, economics is down the hall from political science, and this play is pure politics.

At the end of the day, Dion might oppose the GST cut, but he's unlikely to vote against it. Everyone knows he wants to avoid an election. The only question is at what cost to his own dignity. He has already backed down in the game of chicken on the Throne Speech. Now it's about to happen again on a tax cut, a treasury item that's clearly a question of confidence.

And if Flaherty is trying on a Santa Claus suit, Dion will be cast as the Grinch Who Stole Christmas.

The very virtue of the GST - its transparency as a replacement tax and visibility as a consumer tax - is what has always annoyed Canadians. But as a visible tax, you can also see it shrinking.

For every $200 DVD player, Canadians will now save another $2. For every $1,000 fridge, they will now save another $10. For every $30,000 car, they will save another $300. For every $300,000 home, they will now save another $3,000. As Yogi Berra famously said, you get cash, and it's as good as money.

So, truth-or-dare time for the Liberals again. In voting against the GST cut and yesterday's reductions in corporate and personal taxes, they would trigger an unwanted election. In abstaining again, they would trigger a chicken sound bite. Cluck, cluck, cluck.

As for the real tax cuts, more to come in the budget.

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