By Jonathan Charlton
jonathan@peicanada.com

A two percentage point PST cut promised by PC leader Olive Crane is “voodoo economics,” a UPEI economics professor said.
“Even the most opportunistic projections aren’t going to come close to making up the lost revenue. And on the other hand, if you do any government spending cuts to balance the lost revenue, that’s going to have an equally impressive negative impact on spending,” Jim Sentance, chair of the department of economics and assistant professor said.
“So it’s voodoo economics. She’s putting us tens of millions of dollars further into deficit territory.”
Ms Crane promised a one percentage point cut when she takes office to be followed by a second equal cut when the province can afford it.
She said the province needs the cut because it will stimulate the economy and make PEI more competitive - and said PEI can afford it.
“What economists and accountants tell us is that money will circulate two to three times,” she told CBC.
The Graphic asked Mr Sentance if that argument held water.
He said there is indeed a “multiplier effect” in impact studies looking at money generated by bringing an event to an area or building a stadium, he said.
“So basically the idea is you get extra money in people's pockets and they spend that money. But not only do they spend that money, some of that money becomes new money in somebody else’s pocket and they spend some of it and so on and so forth. You get additional rounds of spending that occur after you get some new initial spending taking place.”
But after that the Tory plan falls apart.
“I think for me the problem with Olive’s suggestion, first of all, is there may very well be some additional money spent, but the additional tax revenue on that of course is going to be a fairly small fraction and it’s not going to make up the lost revenue,” Mr Sentance said.
The two percentage points are expected to put a total of $40 million into people's pockets.
“Even if over two or three times, let’s be generous and say it adds $100 million in new spending on the Island, with a PST of eight per cent that’s only $8 million in new tax revenue, you’re still $32 million short.”
The other problem is what happens next, he said. With that shortfall the options are to add it to the debt or cut spending. And $32 million in spending cuts would also ripple though the economy two or three times, he said.
“So basically, if you decided you’re going to cut taxes by $40 million and cut spending by $40 million, and have a balanced budget, you’re injecting $40 million with one hand, you’re taking $40 million out with the other hand, there’s no net effect. Even assuming you don’t cut the spending initially at some point you’re going to be running up debt.”
A spokesperson for Ms Crane said Tuesday the leader was too busy to return a request for comment.