Â鶹ӰÊÓ

Prime Minister Stephen Harper made the new year a little less taxing on Canadians today by announcing a much-campaigned cut to the GST.

Harper, with Finance Minister Jim Flaherty, announced the reduction of the goods and services tax to five per cent at a Mississauga electronics store this morning.

"The two-point reduction will save the average working family hundreds of dollars per year on day-to-day purchases, not to mention hundreds more on a new car or thousands on a new home," Harper said.

It was the same store Harper visited when he announced his intention to reduce the goods and services tax from seven to five per cent within five years, before being elected prime minister two years ago.

Harper first cut the GST to six per cent last year and said today the drop to five per cent would go into effect on New Year's Day.

"At midnight tonight we will deliver on that promise three years ahead of schedule," Harper said.

The announcement completes one of his major campaign issues during the 2006 federal election.

John Williamson, of the Canadian Taxpayer's Association, said the combined two percentage point cut to the GST will save Canadians between $10 and $12 billion in 2008.

"And for your typical household across the country the combined saving is between $300 and $400 a year. So it is a welcome tax cut and it's one that I think most Canadians recognize is going to be helpful," Williamson told Â鶹ӰÊÓnet.

"And I think more importantly than that, because the economics can be questioned, but it's one that was important because the government promised they would cut the tax to 5 per cent and now they've done so."

The leaders of every federal opposition party have said they expect an election to be called some time this year.

Harper said the cut is a permanent tax cut for all Canadians, and that the GST rebate will be maintained for all low-income Canadians.

Many critics and economists say that the GST cut is bad economics, and less effective than other tax cut options. Others believe the cut will disproportionately benefit wealthy people who make more expensive purchases.

Williamson said that's simply not true. He said the GST cut is "not great policy, but it's not bad policy" either because at least $10 billion will be returned to consumers.

"When the GST was implemented in the early 1990s people were saying it was a harmful tax on the poor because it disproportionately hit them, which was true for a bunch of reasons, actually," Williamson said.

"So now to turn around and say somehow that cutting the GST is not going to help the poor is absurd logic and is not good economics as well."

Canadians were originally hit with the GST in 1990 by Brian Mulroney's Conservative government. Jean Chretien's Liberal party promised to scrap the tax, but changed its mind when in government.