Canadian Economist Recommends Higher GST

by Mike Godfrey, Tax-News.com, Washington

26 November 2001

A leading Canadian economist has suggested that increasing the Goods and Services Tax could do more to strengthen the country's economy than pegging its ailing currency to the US dollar, as has been suggested.

In a speech on Wednesday, Don Drummond, Chief Economist for TD Bank, said that the debates surrounding a possible link-up between the loon and the dollar, or the adoption of the latter as the continental currency, are a waste of time.

'A strong currency is generated by a strong economy,' he explained. 'The focus of the debate should be "what can we do to strengthen the Canadian economy?" And if efforts to shore up the economy don't boost the dollar, they'll still be good for the country.'

Mr Drummond suggested that although an increase in the GST might be difficult for the government to sell politically, it could pave the way for deeper tax cuts in the future, arguing that a higher consumption tax is better for the economy than elevated income taxes.

'It's high corporate income taxes and personal income taxes that hurt us competitively, it's not the high GST that hurts us,' he explained. Mr Drummond also suggested that a reduction in capital taxes and ramping down of trade barriers between the provinces might also stimulate investment and growth.

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