Some Retailers Absorbing 1% GST Cut

Some retailers are increasing prices by 1% rather than dropping their prices to reflect the drop in the GST from 7% to 6% according to this article: “Feds rip GST ‘cash grab’.” Rather, some retailers who include the GST in their prices are keeping their prices the same following the tax cut, such as “vendors who use all-included pricing, such as those with parking meters, candy bar vending machines and taxis.” I don’t see the big deal here. If we take it to the extreme, let’s say I am running a business that sells hybrid cars for $30,000 (I make a profit of $3,000 on each car sold). The government collects 7% GST let’s say. That’s $2100 for GST. So the total cost to the customer is $32,100. Let’s imagine that the government removes GST from hybrid cars as an incentive for customers to buy hybrid cars. So now the cost to the consumer is $30,000. If I want to charge $31,000 (increasing my profit from $3,000 to $4,000) I should be able to do that and there should be nothing stopping me from doing so (assuming capitalism reigns). Flaherty, our Finance Minister called “a decision by the Toronto Parking Authority, which oversees about 50,000 parking spots in the city, to not change fees at its garages and street meters” “outrageous.” I would not be surprised if sales taxes actually have an effect of depressing base prices on goods and services whereas lack of sales taxes can cause prices to go up. Thinking back to problems in profit maximization we solved back in first-year calculus, this only makes sense.