Some years ago, the Federal government cut the GST (the federal sales tax on goods and services which Ontario later blended into the PST to create the HST) by two percentage points. The federal...

Introduction:
Economics requires a balance between what individuals and companies are willing to buy and sell, as well as between government purchases and government sales. On a short-term basis, demand factors are very important. In the long run, however, economic potential is largely determined by supply. A worker's knowledge and ideas determine our productive potential, as do his or her skills, the machinery and structures they utilize, and the quantity of equipment they have access to..
Incentives of Tax:
Particular tax preferences, in the first place, may have an influence on the allocation of economic resources when marginal tax rates are high on the supply side. Long-term, however, increased deficits produced by tax cuts might hamper economic progress. Consequently, the long-term consequences of tax policy depend on both incentive and deficit effects.
Changing incentives is one way in which taxes may alter supply and demand. A reduction in the marginal tax rate on earnings and wages, for example, might encourage individuals to work more. Greater earned income tax credits might encourage more low-skilled workers to enter the labour force by increasing job possibilities for them. Interest, dividends, and capital gains are taxed at lower rates than other income. Some firms may invest domestically instead of a
oad if marginal tax rates on company revenue are lowered. Providing tax incentives to researchers can stimulate the development of innovative ideas that benefit the entire economic system.
Tax reductions, on the other hand, might potentially have a detrimental impact on supply. It's possible that some people will opt to work less and spend more time at home if a tax cut boosts their after-tax income. Because of the "income impact," working is less financially rewarding than not working.
It is also possible for tax provisions to distort the way investment capital is deployed Because of our cu
ent tax system, housing is more advantageous than any other type of investment, such as stocks or bonds. Because of this disparity, housing investment is likely to be overdone, resulting in lower economic production and social welfare.
Analysis on effectiveness of GST/HST tax cut or income tax cut:
As of this year, the typical Canadian family will be able to enjoy a $316 reduction in GST. Contrary to common belief, the authors and other economists advocated for other tax cuts that would be more beneficial to the economy.
Organization for Economic Cooperation and Development (OECD) warned last week that the federal government's aim to lower the GST was off course.. Let's hope that the government now turns its attention to cutting the most harmful taxes.
Even additional tax relief is clearly needed. After accounting for the GST...