Toronto Star Makes Its Facts Up -- Again

GST cut allegedly the most disastrous thing to happen to Canada's economy since Lester Pearson

In an editorial published in today's Torotno Star, it seems their editorial staff has a bone to pick with Stephen Harper over the recent 1% (from 6% to 5%) cut to the GST.

In short, it seems the GST cut will be single-handedly responsible for all of the economic difficulties Canada is forecasted to experience in the coming year:

"Back in November, which in economic forecasters' time already seems like an eternity ago, Finance Minister Jim Flaherty presented a fairly sanguine outlook for the year ahead. For 2008, he saw growth moderating just a little, from 2.5 per cent last year to 2.4 per cent.

Turns out he was far too optimistic.

Yet, carrying over that unwarranted sense of optimism into his fiscal projections, Flaherty also boosted the projected surplus for this year almost fivefold – from the $3 billion figure in his spring budget to a whopping $13.8 billion in his fall economic statement.

He then applied almost the entire windfall to tax cuts, frittering away a full two-thirds of the projected surplus on the Conservatives' second percentage point cut in the Goods and Services Tax in as many years.

But now that Flaherty has almost emptied Ottawa's coffers with his cumulative two-percentage-point, $12 billion GST extravaganza, private forecasters are yet again marking down their growth projections for 2008. For example, TD Economics, which is the highly respected forecasting arm of the TD Bank, last month knocked one-half of a percentage point off Flaherty's November growth projection with a warning that "the risks (of recession) have become acute."

And with each decline in the outlook for growth this year reflecting the marked increase in pessimism about the prospects for the troubled U.S. economy, the small fiscal cushion Flaherty has left himself to deal with the steadily mounting uncertainly shrinks further still.

For Ontario, the combination of the high Canadian dollar, $100-a-barrel oil and a U.S. slowdown could cripple the hard-pressed manufacturing sector, especially the all-important auto industry. The manufacturing sector needs help, but as Prime Minister Stephen Harper keeps warning, Ottawa has almost nothing left after its tax cuts.

Flaherty, of course, would say that his two GST cuts are just what any economist would order for a weakening economy, namely billions of dollars of stimulus to encourage consumers to spend.

Unfortunately, more spending on Chinese-made products, which represents a good percentage of the goods you buy today, creates more stimulus in China than it does in Canada. Just as important, more consumption won't fix what ails our economy in that it will not make our struggling manufacturers more competitive with foreign imports.

That is why virtually every respected economist in Canada opposed the Harper government's cuts in the GST.

At the same time, cutting the GST was a regressive move in that it put most of the money into the hands of people who buy expensive cars and diamond rings as opposed to those who spend their limited incomes on groceries and paying the rent.

Those with the fewest resources will inevitably be the hardest hit by a downturn. For them, a better move would have been for Harper to implement an anti-poverty strategy that would cushion them from a slowdown and ease the hardship they endure even in good times.

Or had Flaherty given some of the $12 billion to cities, not only would the stimulative impact have been greater, but some of the deep-seated problems that plague our underfunded cities could have been solved.

With their GST cuts, the Tories have wasted an opportunity to make the economy stronger and more competitive, to address the plight of cash-starved cities that are engines of economic growth, and to lend a helping hand to millions of poor Canadians who are forced to live their own personal recessions even in the best of times.

And why? So Harper could have a "photo op" in front of shelves of foreign-made televisions, all showing the 5-per-cent GST on their screens, in a consumer electronics store on New Year's Eve. The foreign workers who make those TVs owe him a big vote of thanks."

It's terribly heady stuff, and gives one cause to reconsider the wisdom of the tax cut in question. Yet something doesn't seem quite right.

An October 31 Globe and Mail article reminds us why.

As it turns out, the $10 billion in tax cuts that the Star is complaining about has been accrued not exclusively from the GST cut, but rather combined across cuts to the GST, personal income tax and corporate income tax.

Part of those tax cuts were of precisely the nature that the Star and many publications like it have long clamoured for: an increase in the amount of money an individual can earn before having to pay taxes (to $10,100 by January 1, 2009), and a 0.5% cut to the lowest tax bracket, two adjustments long called for as poverty-fighting measures.

That was in addition to a modest 1% cut across all personal income tax brackets.

In fact, as it turns out, the tax cuts in question do indeed make Canada's economy more competitive. By 2012, Canada's business community -- including Ontario's manufacturing sector -- will enjoy the lowest corporate tax rate of all major industrialized countries.

Lower corporate taxes, naturally, make a strong incentive for businesses to open in, or potentially relocate to, Canada.

A previously-decided tax rate reduction for small businesses was also rescheduled to happen sooner.

As it turns out, the 1% reduction in the GST is actually worth $5.6 billion. Yet even if the previous reduction to the GST were included (presumably another $5.6 billion), the Star would still be wrong, as that $5.6 billion wasn't included in the $10 billion drop in Jim Flaherty's projected surplus as forecasted in the 2007/08 Fiscal Update.

Yet, in the entire 622-word editorial, there's no mention of this -- or any of the other tax cuts that the Star's annointed favourite, Stephane Dion, declined to stop when he had the opportunity to (no mention of that, either).

Once again, the Toronto Star has been caught being either editorially lazy or calculatingly dishonest.

One wonders why the Star would seemingly work so hard to misrepresent the Conservative party's tax cuts, and undermine its journalistic integrity. Then again, journalistic integrity tends to matter very little to activist journalists such as those at the Toronto Star.