Quote:
Originally Posted by bizaro86
I think if you wanted to fight inflation and slow down the economy a temporary hike to the GST would be a great tool. Make it temporary with a fixed end date - that would cause people to delay consumption until the tax ends, which has the opposite effect of inflation expectations. Inflation becomes entrenched when people expect it and buy stuff as soon as they can to avoid future price hikes. Providing an incentive to delay consumption would offset that.
It would also generally take money out of the economy quickly but in a reasonably fair way (especially if you bumped rebates to compensate for low-income). If they repaid debt (or at least reduced the deficit) with the money instead of finding something to spend it on it would also lower money supply.
But no politician wants to run on that platform, so it'll never happen and the BoC has to fight inflation by itself.
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This is a really good idea and I think it would work in the US but not necessarily Canada where you need to raise interest rates if the US does to ensure the dollar isn't devalued. If you just had a temporary GST but the US kept raising their interest rates, there would still be significant inflation in Canada as a result of acquisition cost rising due to a weakened dollar.
Unfortunately, I don't believe the US has a mechanism for a national sales tax but it would definitely work down there (and if they were able to do such a thing, I'd be all for Canada doing it as well).