The federal NDP promises to increase affordability by eliminating the GST on essentials if elected in this month’s election, but experts are saying this won’t focus on the party’s intended target of middle- and low-income Canadians.
Currently, Canada already exempts a few everyday necessities from sales tax, including most groceries, prescription drugs and feminine hygiene products.
The new GST cut proposed by the NDP would broaden the list of exemptions to include home energy bills, cellular and internet bills, children’s clothing and footwear, and prepared meals from grocery stores.
The party estimates this policy will save the average family of four about $448 annually. They say savings were calculated by adding up the typical GST paid in each category, which would be saved if the tax is cut.
According to the NDP campaign platform, “This plan puts money in the hands of middle- and lower-income Canadians.”
However, cutting GST is not the best way to help the middle class save money, said Alex Laurin, vice-president and director of research at the C.D. Howe Institute.
“Everyone is affected,” he said. “It’s definitely not targeted to those most in need.”
Mr. Laurin said cutting the GST could give merchants room to raise prices because they already know people are willing to pay more: “I do not know if they will or not. I’m just saying the opportunity is there.”
The NDP said they would closely monitor sellers to ensure they’re not the ones capturing the benefits of the GST cut.
“If we found evidence of companies colluding to keep prices artificially high, that would be grounds for action from the Competition Bureau,” Anne McGrath, campaign spokesperson for the NDP, wrote in an e-mail.
“We do share the concern of Canadians around corporate pricing power, that’s why we’ve also talked about strategic price caps and stronger consumer and anti-competition rules.”
Mr. Laurin is also concerned that landlords who include utilities in the rental price may not pass down the money saved on GST to renters. Ms. McGrath said the NDP would implement national rent control and other renter-friendly guidelines to ensure these tax cuts reach renters.
In general, the C.D. Howe Institute has actually suggested raising the GST to generate more revenue for the government, which can then be redistributed, Mr. Laurin said.
“Consumption taxes is one of those taxes that create less harm compared to income taxes, which we over-rely on,” he said. “We would be better off reducing the middle-class income tax rate – which is what we have proposed – and raising the tax on the consumption.”
The government will also need revenue to fund spending programs the NDP supports such as child care and pharmacare, said Michael Smart, professor of economics at the University of Toronto. He said because the GST applies to most goods and services, it raises a lot of revenue.
“It’s just a little five per cent tax that does not hurt the economy very much,” Mr. Smart wrote in an e-mail. “The NDP should stop worrying and learn to love the GST.”
To target those most in need, the government could implement GST tax credits based on people’s income tax returns, said Constantine Angyridis, associate professor of economics at Toronto Metropolitan University.
“This is going to achieve two goals,” Prof. Angyridis said. “One, it is going to contain a little bit of the cost of the program. And second, it’s going to be the individuals that really need this relief receiving it.”
He also raised concerns about how cutting the GST would increase the budget deficit, especially with U.S. President Donald Trump’s tariffs looming.
“This is a serious concern because the federal government in the past few years is consistently underestimating the budget deficit.”
Mr. Laurin said GST works well because it’s a broad-based tax, and starting to poke holes in it only invites more exemptions.
“There’s always something that will be nice if it’s not taxed,” he said. “Where do we stop?”
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