Saturday, July 01, 2006

The Great Canadian Tax Experiment

A Happy Canada Day to one and all! I hope everyone has a great day. It’s my first Canada Day in Toronto and I’m heading downtown shortly to check it out, and take in the Jays/Phillies game.

Today is also the first day of a 1 per cent GST cut, and day one of my Great Canadian Tax Experiment. Beginning today, thru July 31, I am going to save every receipt and keep track of every penny I spend. The goal? To see how much I save from Mr. Harper’s one per cent slashing of the dreaded, but economically sensible, goods and services tax.

I’ll track how much GST I save, and how much of my spending isn’t GST’able or is on purchases where the vendor didn’t pass on the savings. Each week, I’ll post an update with my spending and GST savings, and at the end of the month I’ll tally my GST savings and compare it to the increases amount of tax that is now being deducted from my pay check, and we’ll compare the two numbers.

What a fun way to start the summer! If nothing else, fear of public embarrasment may force me to cut back on my McDonald's breakfasts, as delicious as their breakfast buriotos are. And please, this experiment is for entertainment purposes only, so as always, no wagering.

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Bailey said...

If at all possible you should take a look at your paycheque as well. Take note of the decrease in pay because of the tax increase from 15% to 15.5%.

A BCer in Toronto said...

Yes, I'm waiting for that too. Our last paycycle ended June 30, so I'll have to wait how much the hit will be and if it will be more or less than by GST savings, which already have provel to be quite the bonanza, to be sure. So many pennies, so little time.

The Godless Conservative said...

Unless you're planning on buying a house or car this year, you probably won't see much in the way of savings. But that's not the point. You're not supposed to save money on your next pack of gum.
Think of it this way, my average lunch at a downtown food court cost $8.50 (roughly) prior to the decrease. With a 1% decrease, this would come to ~$8.42, a savings of $0.08. If you elminated the GST altogether, the price would be $7.91, a savings of $0.59. Any way you cut it, neither one of those numbers is going to make much of a difference in the amount of beer money you've got for the weekend.

Where the difference will be seen, however, is when you go to buy your next house at $500,000 (not an unreasonable number for a house in Toronto) and you save $5,000.

To say that this reduction will not make any difference to you personally is absolutely irrelevant. Unfortunately, the government doesn't give a crap about you. Nor do they give a crap about me, and I voted for them. What they care about is Canada as a whole. And, on the whole, the seemingly measly 1% reduction will result in $5,000,000,000 in savings for Canadian consumers.

A BCer in Toronto said...

Godless, not to prejudge the results of my little experiment, but I see two points worth making about the GST cut plan. Well, there's more, but briefly, here's two or three.

1/ Collective savings may be $5,000,000,000, but who do you think will be saving more, the minimum-wage earning mother of three, or the uber-wealthy that can afford new homes and luxury cars? The biggest chunk of those savings go to those that need it the least.

2/ Check your next paystub in a week or two like bailey advised, you'll see your take-home pay has gone down. That's because more federal income tax is being deducted to pay for this GST cut. Will you save more from the GST cut than you're loosing now in income tax? If you buy a Lexus, no doubt. Will the average Joe like myself? We'll find out at the end of the month.

One last point, not to belabour this. But besides over-favouring the wealthy, cutting the GST is regressive, not progressive, because it encourages consumption. You need to spend money to "make money", if you don't buy a car or a pack of gum you don't "save" anything. Good for retailers and boat dealerers, bad for our credit card balances. Canadians are already in too much debt. Cutting income tax rates puts money in your pocket and gives you the option of spending your savings, saving it, or paying down debt. Choice, in other words.

The Godless Conservative said...

You make some good points, but some, I feel may be off base.
The wealthy (let's define wealthy as anyone who isn't a single mother of 3) are, and will likely continue to be the largest consumers in our economy. It is ultimately this consumption, however, that provides the fuel that keeps our economy chugging along. They buy their Lexus, which keeps the Lexus salesman in business, which keeps the Lexus line workers in business, and so on. Not to mention all the other side dealers (mechanics, Canadian Tire, etc...) that benefit from the purchase of a new Lexus. As such, given the trickle-down effect of wealthy individuals' spending, more disposable income can do nothing but good.
If we were to give extra money to the single mother of three, (and this is by NO means meant in a derogative way, but purely in a practical economic sense) there is a good chance that the money would go to buying second-hand clothes, food and paying rent. It's clear to see that the trickle-down effect of those is not nearly as great as that of buying the bigger items.

Finally, your argument about progressive vs. regressive taxes is quite contradictory. The GST is the textbook example of a regressive tax, whereas income tax is so for a progressive tax. As such, if you're concerned with regressive taxation, you should be all for the reduction of the GST, coupled with the (small) increase in income tax.

You should also take note that, while the income tax was increased, the actual level at which an individual has to pay income tax was also increased. As such, the increase to low income earners will not be all that much at all.

Finally, as for me, I'm in that happy medium bracket where none of this will make much difference at all. I'll save a penny here and there from the GST cut and I'll take home a couple less dollars each month.

As I said before, it's not going to make much difference to the amount of beer money I've got this weekend. (can you tell we just got off a long weekend? It's Tuesday and I'm already looking forward to next weekend and have mentioned beer twice)

The Godless Conservative

A BCer in Toronto said...

Well argued godless. I always mix up the progressive/regressive thing, I should just stay away from it. My point though was that one encorages savings while one encourages spending.

Anyway, with your Lexus scenario, I give you credit for calling it trickle-down. I had thought though that it had been proven pretty soundly that trickle-down doesn't work.

While we're getting more into philosophy here, I'd argue both society and the economy would be better off giving Mom a few bucks for clothes rather than hope she gets a piece of that Lexus trickledown. Why not cut out the middleman?

And here's why I think that's a better idea for our hopes to be Lexus driving dentist. With a little help that mother gets on her feet, gets a better job with dental coverage, and gets her teeth whitened by our dentist. Her disposable income goes up and spreads throughout the economy, rising all boats. Her kids go to university and become dentists themselves. And, of course, everyone is paying taxes now, lessening the burden on the others, and letting the government lower income tax rates for everyone.

The Godless Conservative said...

By the sounds of your scenario, everybody's becoming a dentist. The fundamental flaw in such an argument is that nobody likes dentists... let's make them become astronauts instead. Everybody likes astronauts.

The Godless Conservative

A BCer in Toronto said...

Just as long as they don't become politicians...or journalists.

Aunty Bertha said...

Feds can't force businesses to pass along GST cut: Flaherty

Retailers that choose to absorb the percentage-point cut in the GST, which went into effect over the long weekend, are engaged in a "cash grab" that the Conservative government is powerless to prevent, Flaherty told a news conference.

I experienced this at the cafeteria at work where all prices include GST - When I complained that I did not receive the appropriate price reduction, I was told that they decided to use this opportunity to adjust pricing (translation: increase their profits).

I wonder how all those who got suckered into voting for their 1% GST cut are going to feel about merchants absorbing it?