Kevin Laliberte
Editor, Smoky River Express

The new year has officially began in Canada with another one percentage point cut in the goods and services tax, to five per cent, fulfilling a key election promise. Prime Minister Stephen Harper got an early start to 2008 by trumpeting his own horn last Monday by re-announcing a long-anticipated cut to the GST that went into effect Jan. 1, 2008. And Harper says Canadians should enjoy it because it may be the last reduction for some time. That’s based on a rather eerie forecast from Conservative government that the Canadian economy is headed for a year of turbulence as a result of tighter financial markets and the fallout from a slowing United States of America economy. The prime minister was recently quoted as saying the government is well aware of the fact that there is “considerable uncertainty in the world economy and in the American economy, adding that “our wish for the year is to sustain the momentum and shelter Canadians from any fallout of global economic problems.” Canadian economists, meanwhile, were anticipating shoppers, who are typically tuckered out by the annual holiday spending spree, to get a mild monetary rush from last week’s modest GST reduction. Still, retail industry observers admitted to being divided on whether the tax cut – worth about $5 billion by one estimate – would amount to a proverbial hill of beans. “I don’t think one percentage point is going to lead to a boom in consumer spending, but it’s a modest price incentive,” says Adrienne Warren, a senior economist at Scotiabank. The federal goods and services tax slash to five per cent from six per cent comes as retailers struggle to hang on to shoppers tempted to take their hard-earned dollars south of the border into the United States to take advantage of the strong loonie. Evidence of that came this past November when a chill set over the already wounded auto sector based on a report from the Registrar of Imported Vehicles validating that Canadians bought more vehicles outside the country in 2007 than ever before. Canadians imported 24,873 vehicles in October alone – twice as many as in October 2006, the data suggested. The end result saw the auto industry quickly begin scaling back prices as the strength of the loonie continued to influence consumers. Retail as a whole, meanwhile, appeared to suffer a lesser jolt. In December, Statistics Canada reported that the increase in cross-border shopping was “minimal relative to retail sales.” The latest GST cut, announced in October and officially in effect on Jan. 1, follows an initial one percentage point saving that was passed to consumers on Canada Day 2006. Some critics suggest that the cuts, which represent mere pennies on a typical purchase receipt, really don’t add up to a hill of beans in the grand scheme of things. But that’s hardly the case when you consider that each percentage point reduction represents a projected loss of about $10 billion in potential revenue to the federal government over the past two years. The tax, a political hot potato since it was introduced in 1990 by former Progressive Conservative prime minister Brian Mulroney, was supposed to be scrapped by the Liberal government underJean Chretien, who eventually reneged on that promise. Our prime minister certainly deserves credit for following through on his!

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