The prospect is said to fill the Liberals with dread. Several apparently volunteered to Mr.

Martin that a GST cut of, say, two percentage points "could be a big winner for the Alliance." One cabinet minister, he reports, "visibly stiffened" when told of the Alliance's thinking.

It's not entirely clear why the Grits are so free with advice to their opponents on how best to defeat them. Certainly the Liberals are in no position to make either cutting or not cutting the GST an issue, having themselves campaigned on a promised to scrap -- or was it replace? -- the GST, only to spend the better part of the last government doing neither, all the while debating whether to confess to having lied when they promised to replace it, or to claim, against all evidence, that they had never said any such thing, or even, in the most extravagant version, that the tax had in fact been replaced -- albeit with itself.

But if the GST is a swamp from which the Liberals can be grateful to have escaped with their electoral lives, it is no less dangerous ground for the Alliance. Granted, the Alliance is not so encumbered with past pronouncements on the tax as either of the two old-line parties, being neither responsible for enacting it nor for failing to remove it. But the position the party takes on the issue is a test, and if it succumbs to the temptation to cut the tax it will have failed the test.

The test is simply whether it is a party of principle, or whether it is willing to whore itself to any cause that seems likely to carry it to power. This isn't only a matter of policy: Though cutting the GST in present circumstances would be bad for the country, the consequences will be at least as grave for the party -- if not now, then in the long run. The perception, not wholly unfounded, that it is a party rooted in principle is part of the Alliance's comparative advantage. If it squanders that advantage now, it will have no basis on which to attack the Liberals for their aimless, opportunistic style of governing.

For it will have become what it is attacking.

Why is cutting the GST a bad idea? The issue isn't cutting taxes per se. Even the most extreme debt hawk (blush) would concede there is now room to cut taxes, even after making payments on the debt. But the question is which taxes. It's no good saying "all of them" -- if it is more urgent that some taxes be cut than others, than any cut in the latter must leave less room to cut the former. The $6-billion or so in forgone revenues from slicing two percentage points off the GST could be used instead to cut roughly six percentage points off the top rate of personal income tax. That is surely a more pressing priority, both because marginal rates are so much higher for the income tax than for the GST, and because income taxes are more damaging to economic growth generally than consumption taxes.

The political appeal of cutting the GST, of course, is that it is visible. As Rod Love, Stockwell Day's chief of staff, puts it, with a GST cut, "you save money every time" you go to the cash register. But that's true of an income tax cut, too: Since every dollar you earn before tax now stretches a little bit further, it's exactly analogous to a universal price cut. We call it an income tax. But it's really just a tax on consumption, collected another way.

The difference is that an income tax doesn't just tax present consumption. It also taxes future consumption: that part of your current income you save and spend at a later day. In fact, it taxes future consumption more heavily than it taxes present consumption. How's that? Because you aren't just taxed on your savings, but also on the return on savings.

Suppose you earn a dollar. If there were no taxes, you could spend the dollar today, or invest the same dollar and spend (say) $1.10 next year. That 10% return might be just enough to persuade you to delay gratification for a year.

But now suppose there is a 20% income tax. If you spend all of what's left after tax today, you get 80¢ worth of gratification. And if you invest that after-tax income? You get, not 88¢ worth of future consumption, but 86.4¢, since the 10% return is itself taxed.

Effectively, the tax on future consumption is not 20%, but 22%.

No one wants to force people to save. But neither should they be artificially encouraged to blow the wad today. To be sure, the RRSPs and other tax shelters for savings eliminate much of this distortion. But it's still the case that explicit consumption taxes are to be preferred to income taxes.

I presume the Alliance knows all this. It should act on that basis.