It seems that the Canadian government is doing a reasonable job of holding onto the fiscal purse strings. They are estimating a surplus of several billion dollars for this fiscal year. In economic speak, that means they are making a profit and can pay down some of their debts and interest on the debts. To you and me, it means that they are willing to put some money back in our pockets, so we can spend it.
The federal government has announced that they are reducing the GST another percentage point to 5%. They are also giving us a small personal tax break. These changes give easy fodder to a lot of government critics. I want to know:
How does these tax incentives affect you and me?
The meager tax cut is easy. It means that I can take my family to Wendy’s one more time, as long as no one super-sizes their meal. Spread out over all Canadians, the $740 million tax break will put about $30 in your pocket.
Now, the GST cut is a more interesting incentive. This cut seems to be taking a substantial chunk out of the governments surplus. Shaving 1% off the GST is going to cost the federal government $5.5 billion annually.
This is how I look at it.
Let’s say you and I spend about $25,000 of our hard earned income on food, movies, CDs, hockey games, soccer camps and the like. A 1% GST cut would put an extra $250 in your pocket. So now it is one more night out to a Leaf game, or half a week of golf camp for my son, or 2 tickets to Dirty Dancing at the Royal Alex.
Both of these benefits, the personal tax cut and the GST cut, mean that I can have some fun. It makes me feel good. And that’s what the government wants, isn’t it.