Saturday, November 29, 2008

GST cut clever and timely after all?

When the federal Tories cut the GST, it was widely panned by academic economists since it encourages consumption instead of investment.

Yet today the consensus seems close to universal that governments worldwide need to stimulate consumption by running deficits or otherwise pursuing policies that stimulate spending as opposed to saving. Never mind that borrowing to consume is what got the developed world into its present crisis...!


"[The favorite go-to economist for the Canadian media, Don Drummond, said] "the government should consider cutting taxes on lower income Canadians [who are] more likely to spend the money than those more affluent who might be tempted to bank it."

This is EXACTLY what was trotted as the reason why NOT to cut the GST (the tax savings would get spent instead of "banked").

No comments: