As of January 1 I’m supposed to start saving money as the GST has been dropped by 1%. Yet once I looked at our spending on what I actually get taxed on I realized it has to be one of the more useless tax cuts ever introduced in Canada for me.
You see all my major expenses don’t have the GST on them. My mortgage doesn’t have any GST, most of my food bill has no GST (I checked my last one I spend $2.62 in GST on a $210 food bill) and all my savings also doesn’t have any GST on it. So in the end I went through my monthly spending and I estimate that tax cut is going to save me a whole $10/month at best or a whole $120 a year for my family. O yes, I can finally retire a entire week earlier now.
To put this into perspective when the federal government dropped the lowest tax bracket rate from 15% to 15.5% each person would save about $140/year. Once you combine this with some of the other measures in the last year, such as the new child tax credit and increase to the basic exemption I’m saving around $1000/year on my family’s tax bill. Now that is a tax break in my mind.
So what good is dropping the GST? Well it can be useful tax cut if your buying a new house or car, since 1% on a large number is significant. Also if you are buying lots of consumer goods you would also do better with the tax cut.
Yet what really got me a little steamed about this cut is when I analyzed what this was encouraging in our country. In essence the government is rewarding people that spend a lot of money and then not giving a break to those that choose to save money instead or live a frugal lifestyle that doesn’t buy many new things. So in the end are they encouraging fiscal irresponsibility by lowering this tax? I think that perhaps they are. Let me know your thoughts.