A costumer shops at Vince’s Market, a grocery store in Sharon, Ont., on Nov. 21.Chris Young/The Canadian Press
Fred O’Riordan is the national tax policy leader at EY Canada and former assistant commissioner, appeals, at the Canada Revenue Agency.
Last week the federal government introduced two new measures to help Canadians with affordability: the “Working Canadians Rebate” and a “GST/HST break for groceries and holiday essentials.” These initiatives aim to help Canadians “buy the things they need and save for the things they want.”
But will they?
There is little doubt affordability is a big issue in Canada. Statistics Canada data show the median after-tax income for Canadian families and unattached individuals was $70,500 in 2022, down from $73,000 in 2021, adjusted for inflation. The poverty rate also rose to 9.9 per cent in 2022 from 7.4 per cent in 2021, nearing the prepandemic rate of 10.3 per cent in 2019. The situation has likely worsened since.
Let’s consider the “Working Canadians Rebate” first. This comes with a hefty $4.68-billion fiscal cost. The government will send a tax-free $250 cheque this spring to each of the 18.7 million Canadians who earned $150,000 or less in 2023. That means everyone in this range will receive the same $250, whether they made $25,000 or $150,000. If this measure had been designed to truly help those most in need, it would have been structured in a more targeted way.
A fairer approach would have been a sliding scale of benefits that decrease as income goes up, similar to how progressive taxes work. Lowering the income threshold to around the median income of $70,500 would have allowed for more generous support to those who need it most, at a lower overall cost.
Further, to qualify, recipients must have filed a 2023 tax return by the end of this year. Many low-income individuals don’t file tax returns, so they’ll get nothing. Even low-income Canadians who have filed but didn’t earn employment income, such as retirees on fixed incomes, will be excluded from eligibility. A strange measure indeed.
Now onto the two-month “GST/HST break for groceries and holiday essentials.” This plan, which takes effect December 14 and ends February 15, will cost approximately $1.6-billion in lost revenue. The basket of goods chosen for tax relief includes snack foods, prepared foods, restaurant meals and gaming consoles. By any measure, those are items not exclusively bought by those in financial need. Since this initiative isn’t income-tested, higher-income individuals, who aren’t in financial stress and can afford to spend more, will benefit the most.
What’s more, the federal government was disingenuous in presenting itself as the source of those benefits.
The federal Department of Finance stated that a family spending $2,000 on qualifying goods over the two months would save $100 on the 5 per cent federal GST. In provinces with harmonized sales tax, which includes both a federal and provincial component, it said the savings would be even higher – $260 in Ontario, which adds an 8 per cent provincial tax for a 13 per cent HST.
This announcement likely surprised finance officials in the five provinces with HST, since they clearly had not been consulted, nor had they approved the extension of this measure to include their revenues. Like GST, HST is collected by the Canada Revenue Agency but then the provincial portion is remitted to the provinces.
Ottawa has been noncommittal about reimbursing provinces for lost revenue. That means Ottawa took full credit for a measure that provinces will largely fund – up to two-thirds in the Atlantic, where the provincial component of the HST is 10 per cent. Federal-provincial co-operation at its finest (as long as you are the federal government).
Lastly, let’s not forget any new federal spending is financed with additional borrowing. The cost of these two measures racks up a final bill of $6.28-billion. In October, the Parliamentary Budget Officer estimated last year’s deficit at $46.8-billion, with the final figure to be confirmed in the government’s fall economic statement. The Liberals previously pledged to keep the deficit below $40-billion.
The PBO also projected this year’s deficit to drop slightly to $46.4-billion “under status quo policy,” up from the $39.8-billion predicted in the spring budget. Now with these new measures, the deficit appears to be on track to exceed $50-billion, even before considering new spending promises associated with a 2025 federal election.
The fall economic statement might provide more clarity on this important question. But as it stands, it’s clear that these new Ottawa measures do not help Canadians most in need. These handouts benefit too many who do not need help and not enough of those who do. And their cost, in the form of a widening budget deficit, is a price that must be paid down the road, likely in the form of reduced government spending or higher taxes.