It turns out this switch is also a “transfer” of resources between two groups, relatively speaking. These groups are people that HAVE borrowed and people that HAVE saved.
When we increase GST and lower income tax we are saying “we will tax future consumption more and future income less”.
If people have borrowed this implies that they purchased consumption when it was relatively “cheaper”, and are now going to be taxed at a lower rate on the income they are making to pay it back – as a result, borrowers win.
If people have saved, this implies that they have deferred consumption when it was cheap – and will buy things when they are more expensive. As a result, savers lose out from the change in relative taxes.
Since it is “true” that people on low incomes borrow relatively more of their income, then in a static sense this switch could be seen as more “progressive” right? I don’t really like static definitions, but if people are complaining about the poor and saying that the poor borrow more then it is important to keep this initial transfer in mind …
Personally, I think borrowing and saving is based more strongly on lifetime income, impatience (which I think is income neutral) and the lumpiness of consumption – as a result, I’m don’t see to much progressivity here. However, this does tell us that people with a stock of liabilities will benefit and people with a stock of assets will lose.