Comment 72368

By A Smith (anonymous) | Posted December 18, 2011 at 13:58:20

In 2010-11, the GST took $28.38B out of consumers pockets ($842/person).

If consumers were given this money back, what would happen?

Is it possible that people would use some of that money to buy additional goods and services? And if sales did improve, would employers be able to get by with the current amount of workers, or would they be forced to hire more workers to meet the higher sales volume?

Moreover, if more people are working and producing real goods and services, is that a good thing for the economy, or a bad thing?

But can we afford to pay for these tax cuts?

Well, the current interest rate on the Canadian 10 year bond is 1.87%, while federal debt charges/GDP have fallen from 4.239% in 2000, to 1.793% today. In other words, there is plenty of fiscal room to cut taxes.

The real economy is not about money, it's about production. Money is like oil that greases the wheel of production. If there is not enough oil, the wheel spins slower than optimal (low capacity utilization, unemployment over 5%). In contrast, if the government throws too much money into the economy, too quickly, there is a good chance that it will be wasted (wage inflation, price inflation).

Government debt is a non-issue in a nation that prints its own currency, which Canada does. The ONLY issue that we could have is inflation. However, given the fact that investors are lending at record low rates, it would appear that they are signalling lower inflation going forward.

Hopefully the government figures this out and starts giving consumers more spending power and workers more hope in putting their skills to work.

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