The GST Cut is not so Stupid

This paper argues that the two-percentage point cut in the GST to 5 per cent proposed by the Conservatives in the January 2006 Canadian federal election and implemented in the 2007 budget was not “stupid” as suggested by many economists. To the contrary, it fortuitously turned out to provide needed fiscal stimulus of a particularly potent type just as the economy turned down. It also had a progressive impact on the incidence of the tax system. And finally the lower rate would make it easier to harmonize the GST with provincial sales tax.