From the Globe’s epic profile of Jim Flaherty, the Finance Minister explains why cutting the GST was a good idea.
Flaherty is unrepentant about the GST cut. Over the G20 weekend, he says, he had a spirited debate with his British counterpart over the issue of consumption taxes. George Osborne, a Conservative, had just laid out plans to raise Britain’s version of the GST as part of the new government’s program to narrow a massive budget deficit. “I know the argument about consumption taxes,” says Flaherty. But what economists fail to take into account, he says, is the psychological value in cutting a highly visible levy. “There is something else that goes on too, and that is, middle-class people don’t believe that governments reduce their taxes,” Flaherty says. “But if you do it on a consumption tax, people see it. That, in part, restores faith in government. Taxes don’t always go up, they can go down, and they see it every time they buy something.”