Sunday, July 02, 2006

Could GST Cut Cause a Recession?

Keep an eye on the CPI numbers out of Statistics Canada, beginning in August. It will be then when we see what impact the GST cut has on inflation.

You see, they calculate inflation by taking the price of an item this month and comparing it to the price of an item last month and 12 months ago. In the process they remove the GST and Provincial Sales Taxes as they are only concerned about the 'before tax price' the retailer charges for an item.

It is expected by many that retailers will just use the GST cut as an opportunity to raise their prices by 1%. If that is the case we will see that in the coming months as a spike in the CPI.

When the Progressive Conservatives, under Brian Mulroney, introduced the GST, at the beginning of an economic slowdown, the extra costs of the tax caused Canadians to stop buying and dumped the Canadians economy into a recession.

Would it not be ironic if another Conservative Government, that is being advised by the same Brian Mulroney, caused a spike in the inflation rate by reducing the GST which, in turn, would cause The Bank of Canada to raise interest rates, just at a time when there are increasing signs that Canada could experience a period of slow economic growth within a year?

It would be ironic and unfortunate that one Conservative government dumped us into a recession by imposing the GST and another one could very well dump us into another one by reducing that same GST.

4 Comments:

Blogger Lookout Mountain said...

Its possibler but not probable.

July 02, 2006 11:51 PM  
Blogger TrustOnlyMulder said...

I think the price of gas being regulated is more likely to cause a recession.

July 03, 2006 8:00 AM  
Blogger Fred :) said...

Grasping at straws, there buddy,

Very desperate straws at that.

It far more likely that Volpe accepting campaign cheques written in crayons will cause a spike in the demand curve for chldren's school supplies that will lead to hyper inflation & recession.

July 03, 2006 9:22 AM  
Blogger ottlib said...

ko: Agreed, it is only a possibility at this point. However, I believe it is a strong possibility which is why I wrote the post.

TOMulder: Interesting thought. I believe I know where you are going with it but if you want to expand on it I would be interested.

July 03, 2006 12:22 PM  

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