Senator Gignac: For the record, I disagree with your last sentence that this bill will help the rich more than the poor. It’s limited because people who earn more than $30,000 a year do not have access to this GST reduction.

Hon. Yuen Pau Woo: I very much enjoyed your discussion of alternative economic models and wanted to ask you about your recommendation of a GST cut as opposed to the measures in this bill. There is merit to the argument — and you’ve pointed out that some of the countries are doing it — but would you not say that the main difference between an across-the-board GST cut and the doubling of the GST credit is, of course, in its distributional impact? Whereas an across-the-board cut would benefit all consumers, the credit increase would benefit a targeted group of lower-income Canadians. Thank you.

[Translation]

Senator Plett: Thank you, senator, and you may be right: Future governments may decide to increase the GST again, but this government is responsible for acting under their watch as the Harper government was responsible for acting under his watch. He did decrease the GST. It has not gone up since then. This Liberal has not tried to raise the GST. They have raised a whole pile of other taxes, but not the GST.

So you saying that reducing the GST means it will only be raised in the future is entirely hypothetical — it might or might not be the case.

Also, when you say that reducing the GST will help the rich more than the poor — that may also be correct, but so is this bill. In the illustrations I used, this bill is helping those in a higher income bracket more than those in a lower income bracket. So this bill is doing that as well.

Senator Bellemare: Indeed, Senator Woo, I agree with you completely that the distributional impact would be different in each case. I can’t to tell you in advance what that impact would be. What we do know is that the GST credit will be distributed via the tax system. However, as we heard in the speeches yesterday, a significant portion of our most vulnerable citizens don’t file income tax returns and therefore won’t benefit from it. This is a very short-term temporary measure.

Lowering the GST would have cost more, obviously, but it would have taken pressure off the Bank of Canada to stop raising interest rates so quickly. Lowering the GST would have benefited consumers, who wouldn’t have to spend so much, and it would also have reduced the macroeconomic costs of an anti-inflation strategy that is clearly not designed to address supply problems, and may even exacerbate them. That is specifically where the problem lies, and it needs to be addressed.

In the short term, we have to reduce demand to avoid worsening inflation and, in the medium term, we need to have a plan to improve supply chains.

[English]

Senator Woo: Thank you, Senator Plett. I have the same question for you that I asked Senator Bellemare, but whereas I asked Senator Bellemare a question out of genuine interest in the economic model she was proposing, I am befuddled by your explanation of how the economics work in the model you have put forward. Your starting point is that federal government spending is out of control and therefore unsustainable, and that it is this same spending that has added “fuel,” to use your words, to inflationary pressure essentially through what they call expansionary fiscal policy. Your solution, then, is to reduce the GST by a few percentage points, but that is expansionary fiscal policy.

While I haven’t done the detailed numbers, the back-of-the-envelope calculation in my head suggests to me that a reduction in GST of a few percentage points for everyone will be much larger than the cost of Bill C-30. Therefore, that policy would be an even more expansionary fiscal policy than what we are considering in this bill. It would also, by the way, exacerbate what you claim to be a problem of fiscal unsustainability.

Then there is the magical thinking that by reducing the GST — and increasing expansionary fiscal policy and adding to inflationary pressure — that reduction will allow the Bank of Canada to be less strict and harsh on increasing interest rates. That’s what we call fiscal dominance, where the fiscal policy of being irresponsible by cutting GST puts more pressure on the Bank of Canada to increase interest rates. Since you brought up the U.K. example, that is exactly what is happening in the U.K.

You are proposing, essentially, a policy of increasing expansionary policy, which will push up interest rates and inflation more than it does currently. You are creating pressures for the Bank of Canada, to the extent that this is an unsustainable fiscal policy, to increase interest rates more. I would add that reducing GST is a very difficult policy to unwind. You know that very well because it was under a previous Conservative government that reduced GST from 7% to 6% to 5%, which is where we are today.

My question to you, Senator Plett, is: What economics textbooks are you consulting?