Opinion: Sask. should consider PST cut to combat economic turbulence

Article content

Canada was thrown into turmoil this weekend with American President Donald Trump’s announcement of 25 per cent tariffs on everything his country buys from us, except, of course, for energy, with which we subsidize America, and not the other way around.

Article content

Article content

South-bound energy exports still would face a substantial 10 per cent tariff.

From coast to coast, our politicians have responded. Premiers are taking American liquor off the shelves, the federal government threatened retaliatory tariffs and sports fans across the nation are booing America’s national anthem.

Article content

Despite the 30-day tariff delay announced on Monday, America’s president continues to speak of trade deficits and his desire to annex our country.

Whether or not tariffs occur, our government must be prepared for the substantial economic impact that they would bring. Economist Trevor Tombe has suggested that as many as 600,000 Canadian jobs could be lost.

Canada, and Saskatchewan, would almost certainly enter a steep recession this year. If tariffs are implemented, GDP is projected to fall by two to four per cent. Saskatchewan’s Government would have to respond with stimulus to address this impact. It should do so by cutting the provincial sales tax.

Article content

Recession means reduced consumer spending. Facing higher prices, lower incomes, or both, Saskatchewan residents will spend less, negatively impacting businesses and employment throughout the province. A PST cut addresses this directly by stimulating demand and lowering prices.

During the pandemic, economist Michael Smart made a compelling case for a temporary GST cut. He cites the example of Saskatchewan’s reduction of the PST from seven per cent to five per cent in the early 2000s.

Article content

Article content

The cut was almost entirely passed on to consumers, with prices falling by 1.8 per cent, while retail sales rose by more than five per cent.

Smart then suggested that the GST be temporarily increased once the economy had recovered. The post-recovery hike would serve to address the debt from the cut, while encouraging consumers to spend today rather than facing a tax hike tomorrow.

Saskatchewan has the means to address current and future deficits without increasing sales tax revenues, but the present situation provides a prime opportunity to address inefficiency that has made the province uncompetitive.

The PST applies to various upstream business inputs to which the GST does not. This makes the overall PST rate of six per cent appear lower than it actually is, with higher upstream costs cascading to consumers.

On top of that, tax on business inputs means Saskatchewan has the third highest marginal tax rate on investment in Canada. Scrapping tax on inputs by aligning the PST with the GST could reasonably cut this rate by 10 points or more.

Cutting tax on business inputs would cost about $1.1 billion, so in order to levy the same sales tax revenue the province would require a PST rate of 9.5 per cent. This isn’t really a tax hike, but for many it likely appears to be.

Article content

Thus, not only would this change increase investment, but it could help stimulate more immediate spending.

Saskatchewan could phase a cut in gradually, reducing the PST by half a point this year and a quarter point each in 2026 and 2027, before introducing a harmonized sales tax in 2028. This would cost approximately $1.2 billion, and would lead to gains throughout the province beyond that cost.

Given that each dollar in PST revenue costs the economy $1.53, this gradual PST cut could increase economic activity in Saskatchewan by $1.8 billion.

This is but one of many options for Saskatchewan to consider in the face of American tariffs, and it is one that must be done if the province wants to protect industries and consumers while delivering the higher levels of investment that we should always have been pursuing.

The trade war we’re facing would cost American and Canadian families dearly, but we now have the opportunity to prepare ourselves and address our shortcomings so that we can weather the storm today while building a stronger economy for tomorrow.

Ty Thiessen is a University of Saskatchewan student researching methods of government finance and debt reduction.

Article content

Share your views

The StarPhoenix welcomes opinion articles. Click here to find out what you need to know about how to write one that will increase the odds it will be published. Send submissions to letters@thestarphoenix.com or ptank@postmedia.com.

The Saskatoon Star Phoenix has created an Afternoon Headlines newsletter that can be delivered daily to your inbox so you are up to date with the most vital news of the day. Click here to subscribe.

With some online platforms blocking access to the journalism upon which you depend, our website is your destination for up-to-the-minute news, so make sure to bookmark thestarphoenix.com and sign up for our newsletters so we can keep you informed. Click here to subscribe.

Article content