It Didn't Work For Bob Rae In Ontario

Stephen Gordon: The GST can save the NDP

Posted: August 20, 2009, 11:15 AM by NP Editor

The NDP has never been a fan of the GST, and persuading Canadian progressives of its merits is a never-ending variation on the theme of "but these go to eleven:"

Progressive Person: How do we raise the tax revenues we need for the social programs we want to implement without tanking the economy?
Economist: Consumption taxes. Theory says that consumption taxes such as the GST are the least-disruptive way of generating tax revenue, and available evidence appears to be consistent with the theory.
PP: But consumption taxes are regressive!
E: Yes, but we can correct for that using targeted transfers to low-income households so that they aren't worse off; that's what the GST rebate is for. And there will still be lots left over to fund those social programs.
PP: But consumption taxes are regressive!
E: I know. But they introduce fewer distortions than the alternatives, and we can recompense low-income households for their lost buying power.
PP: But consumption taxes are regressive!
E: I'm not disputing that point, but there's more to the analysis than that. Okay, let me explain the effects of the various forms of taxes...
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E: ...and so we see that a consumption tax accompanied by direct transfers to low-income households is the most effective way of generating the tax revenues you want.
PP: But consumption taxes are regressive!

Clearly, that's a dramatisation: in real life, it would never have occurred to a progressive to ask an economist how to finance social programs without tanking the economy. But I'll try to summarize once again why the NDP should abandon its traditional antipathy to the GST and start to view it as an important instrument in advancing its agenda.

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