The following article is based on speaking notes from a presentation which the author gave to the Senate Committee on National Finance. The video of the presentation is at the bottom of the page.
In the midst of an ongoing furor over affordability, Canada’s federal government announced a flashy new policy—stripping the GST sales tax from some goods during the holiday season, including childrens’ toys, Christmas trees, books, clothes, and most food items. With the initiative set to cost $1.6 billion, it’s a relatively large spend, and is a symptom of the government’s increasing desire to be seen as doing something about the cost of living.
It comes at a good time for the federal government. Their 2024 budget baked in an assumption that there was going to be a recession this year—but with no recession having arrived, federal finances are doing better than expected, and the feds likely have an extra $5 billion more in the fiscal framework than they thought, a part of which they want to put towards the GST holiday.
Its only for two months and on a pretty limited group of goods, but will still amount to a fair amount of money. Is a GST holiday the best use of $1.6 billion, or could that money be better spent on more targeted measures that would alleviate food insecurity, homelessness, and the broader affordability crisis?
There is no guarantee that this will be for consumers alone.
There is no guarantee consumers will benefit from the full five per cent reduction in prices, or more in provinces that are also cutting the HST. A tax holiday relies on businesses passing on savings. There’s nothing to stop retailers from raising prices by one or two per cent when the GST of five per cent comes off to keep some of that GST holiday for themselves. They can also scale back discounts that they’d otherwise provide, effectively accomplishing the same thing. That “we pay the GST” discount from last year might be skipped this year.
While the government hopes this measure will boost consumer spending, the reality is that its impact on household budgets may be far less than expected. Corporate price-setting practices could diminish the intended relief, especially for food, where inflation continues to outpace general inflation.
Affordability is also about inequality
Canada is in an affordability crisis, but it’s not evenly distributed. Some workers—in sectors like IT and accounting—have made back their lost purchasing power and then some through significant wage increases. Others, particularly in the service sector, are still way behind their pre-inflationary period wages.
The elephant in the room is rents. Rapid increase in rent, particularly in major cities, has left many families with little to cover the other essentials like food and healthcare. Food bank use is shattering records across the country, and homelessness is growing. While national unemployment is rising, it’s hardly at crisis levels meaning these structural issues continue to push people into poverty even if they’re working. If you’re a renter, then the landlord eats first—leaving you with little for other necessities.
A broad GST holiday that benefits all consumers—even those not in financial distress—actually favours people likely to spend more money during the holiday period. This money would be better spent on targeted interventions, like a focused transfer for low-income households—which could provide immediate relief, especially for those relying on food banks and at risk of homelessness.
The feds should also be implementing longer-term solutions to the root causes of the affordability crisis. The federal government could easily enhance the supplement to the Canada Child Benefit, for example—a program which has already reduced child poverty, where additional funding could have a greater impact. A new supplement could deliver up to $8,500 per child for the poorest families, cutting child poverty in half overnight.
The cost of such a supplement would be roughly the same as the proposed GST holiday and the delayed $250 per worker cheque. In this context, we must ask whether a broad-based GST holiday, which only offers modest relief, is actually about addressing affordability—or whether it’s about political calculus.
The GST holiday is a small, unfocused measure that won’t reduce food bank usage, homelessness or poverty. Instead of spreading resources thinly, the government should consider more targeted interventions that provide real support to those facing the full impact of the affordability crisis.
This holiday season, we should ask how we can use the resources at our disposal to make a meaningful difference. The $1.6 billion earmarked for the GST holiday could go much further if directed at the families and individuals who need help the most. In times of crisis, the most vulnerable should be our first priority.
