There's a blog post here about how raising consumption taxes is the best way to go about financing help schemes for the poor. It's written by an economist, and it raises the point that consumption taxes do not distort price signals and hence do not add "excess burden" onto the economy. The contention is that everyone is taxed equally, but only the poor receive the help packages, so overall they are better off.
I think these contentions miss the point. As I stated in my letter, these help schemes won't be indefinite, and I doubt they will be around for as long as the tax increase will be. But going further than that, we have to recognise what is best for the economy may not be what is best for the lower-income. The widening income gap already suggests this as the poorer section of society is being left behind as the rest of the economy develops. So, if we want to help the poor, we should be looking at what works best for them, not what works best for the economy. We have to accept that what is best for the lower-income may not be good for the economy.
A widening income gap is undesirable for reasons other than economic ones. We have to be aware that this issue encompasses more than just economics, and we have to keep in mind the rationale for the increase - to help the lower-income. All the arguments for raising the GST I've seen so far are about how its best for the economy, how it lets us remain competitive and stuff like that. None of them address the reason why this is an issue in the first place - what is best for the poor?
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You see, the government is only willing to do what is good for the poor within the limits of what is good for the economy. Which is why what they are doing is so little for the poor and why they seen to be so unsympathatic.
How much would the poor need?
And what is best of them?
The point really missed in your argement is what happens to the money collected from the 2% GST hike?
Since mortals eventually must die one day, should doctors stop saving them? If there is not best, possible cure, should doctors still treat their patients?
It's true that we don't really know what happens to the money that will be generated by the 2% hike. We have to wait until the government lays out its help package to be sure. However, the government also announced that corporate tax cuts are likely, which would decrease government revenue, and that would have to be made up somewhere.
And we have to keep in mind that the poor will be the ones who will be footing most of the bill for this help package anyway, so its basically the left hand taking what the right hand is giving. Sure, since the financial aid will only be disbursed to the poor, you could argue they benefit more than the rich, who get nothing.
But my point is, if helping the poor is our aim, a GST hike is not the way to go because its not the best way to help the poor.
I'm not sure what analogy you are trying to draw right at the end, but if your point is that we should help the poor even if there is not a best possible solution, then I agree. But I'm not sure all options have been explored and sufficiently debated. I doubt that is going to happen either.
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