Prime Minister Stephen Harper has made tax cuts a top priority since he was first elected as the leader of the Conservative party.

So it's no surprise that after he was elected as prime minister in January 2006, Harper followed through on his promise to slash the Goods and Services Tax, cutting it from seven to six per cent, then finally to five per cent.

While that move put more money in Canadians' pockets, it also cost the government billions of dollars, and left many scratching their heads.

Admittedly, hindsight is 20/20, but according to one taxation watchdog the program has taken a whopping $12 billion out of federal coffers -- funds he said would come in handy now as Ottawa faces a deficit for the first time in over a decade.

"They estimated that a 1 per cent drop in the GST is roughly $6 billion or $7 billion dollars of revenue that they would lose," said Larry Chapman, executive director of the Canadian Tax Foundation.

"When they were projecting what the GST cut would do to revenue for 2009-10, the estimated the GST cut in that year would cost $12.6 billion."

The deficit from Tuesday's federal budget is expected to amount to roughly $34 billion -- the cost of the government's plan to dig Canada out of the current recession.

"So would they like to have that back now? Are there other ways they'd like to spend that $12 billion dollars right now? (Finance Minister) Jim Flaherty won't get up in front of the House of Commons and say that there are, but I'm sure people are thinking it."

One wouldn't expect to hear the director of the Canadian Tax Foundation criticizing a tax reduction initiative -- the very thing the organization stands for.

And he's not, exactly.

Chapman is clear on his position that tax reductions are generally good for the economy.

However, he said the timing of those tax cuts, and the areas where they are implemented, are crucial factors if the economy is to see maximum benefit.

When the first cut was made to the GST in July 2006, the economy was strong and large surpluses were being banked by the feds. But Chapman said many analysts at the time suggested an income tax cut would be a more effective way of giving money back to taxpayers.

The second cut -- which completed Harper's pledge to slash the GST to 5 per cent -- made more sense, Chapman said.

"2008 was different, when it went from 6 to 5 per cent. I think they saw storm clouds on the horizon and wondered what the reaction of consumers was going to be, so maybe in that case you can say maybe a one point reduction makes sense."

He said much of the current economic trouble is beyond Canada's control, noting that the Conservatives have "resisted the temptation to spend like drunken sailors" and have been responsible in their money management.

Chapman said the Tories have also kept strong banking regulations in place, which has protected the economy from a sub-prime mortgage or credit crisis, like that currently underway in the U.S.

Rainy day fund needed now

Kevin Gaudet, acting federal director for the Canadian Taxpayers Federation, agreed that Canada has been protected by strong regulations on banks.

He said the GST cut can't be blamed entirely for the impending deficit.

"To pretend that suddenly, magically, it is the sole factor for the declining government revenues, would be to ignore a swirling number of factors," Gaudet said, adding that the larger culprit is the high rate of government spending in recent years

"A simple way to put it would be to say they've spent at twice the rate of inflation for a decade, and that's not sustainable."

The current situation, Chapman said, can be compared to a worker who gets a raise and immediately spends the extra funds, rather than saving "for a rainy day."

That rainy day is now, he said. And partly because the surplus was returned to tax payers in the form of the GST cut, and not put aside for a future storm, Canada faces a deficit situation.

While Harper and Finance Minister Jim Flaherty have pledged the deficit will not be structural or long-term, Gaudet worries it will be difficult to emerge from such a hole.

"The U.S. has a cold. And when it has a cold, we have a cold."