I don’t know what I think about that one. The IMF findings are found on their website here.
6. The government’s intention to lower the tax burden is appropriate. The modest fiscal space after planned debt reduction would most usefully be used for growth enhancing cuts in personal and (in particular) corporate marginal effective tax rates. We welcome the government’s commitment to using interest savings from debt reduction to lower personal income taxes and its objective of achieving the lowest marginal effective tax rate on new investment in the G-7. Marginal income tax rates are high by international standards, suggesting that reductions in this area would provide larger efficiency gains than further cuts to the Goods and Services Tax (GST). Indeed, with population aging implying a steady lowering in the ratio of workers to the overall population, there is a case for increasing the role of consumption taxes in the overall revenue effort.
So in effect, they think lowering taxes is a good thing, and the government is going in the right direction. However, they are reducing the wrong taxes, and in fact, should be lowering income taxes and corporate taxes, not the GST. Interesting, I don’t know if I agree or disagree with this, but it is interesting to read, especially given last week’s statements that we need higher taxes in Canada.
I’d like lower taxes across the board, and increasing a consumption tax given the population of Canada is ageing may not be fair either (in my opinion). However, it may increase government income, which is the point the IMF is making (I think).
PS: We are mentioned in the Carnival of Thoughtful Consideration #1 this week!
well a big incentive to having a consumption based tax is that it is automatically inline with the economy. When the economy faces a slowdown consumption drops, and thus the dead weight loss associated with the tax is kept at bay. Whereas income taxes are less liquid, and still tax regardless of how the economy is performing.
~i have a masters in economics. but am a big fan of your blog.
Not certain I agree with their assessment either, increasing sales taxes will have a much longer term effect especially if the government needs more money (they’ll simply re-raise incoome taxes).
I do like the idea of lowering corporate taxes, this could help spur the economy into overdrive and help canadian companies compete on the global market.