Ottawa’s GST holiday could cost as much as $2.7 billion if provinces with a harmonized sales tax (HST) don’t waive their right to compensation, according to a newly released report from the parliamentary budget officer.
The two-month tax break between Dec. 14 and Feb. 15 will see “holiday essentials” such as snacks and prepared foods, some types of alcohol, and certain children’s items exempt from the 5 percent GST at the cash register. Canadians in Ontario and the Maritimes will also get a break from the HST, which is 13 percent in Ontario and 15 percent in the Maritime provinces.
The PBO noted the uncertainty of the amount because it is impacted by the number of provincial governments that choose to waive their rights to compensation.
Ontario—the province likely to experience the largest HST revenue loss among the five provinces—has already said it will not seek compensation from Ottawa.
Ontario Finance Minister Peter Bethlenfalvy said the decision was made after engaging in “extensive discussions” with the federal government.
“The provincial government will match the federal government’s two-month GST holiday by removing our portion of the HST from items not currently covered by existing provincial rebates,” Bethlenfalvy said in an emailed statement.
New Brunswick has asked for compensation from Ottawa to cover its lost revenues, while Prince Edward Island and Newfoundland and Labrador have not. Nova Scotia has yet to state its stance.
Following release of the PBO report, a spokesperson for federal Finance Minister Chrystia Freeland encouraged all provinces to waive their sales tax.
‘Uncertainty’
The PBO used Statistics Canada’s monthly retail sales data and a survey of food services and drinking establishments to determine the percentage of annual sales that typically occur within the two-month time frame.The PBO also incorporated the likelihood of Canadians purchasing more than usual to take advantage of the GST/HST holiday, but the report noted that the figures it used to reach its $2.7 billion cost estimate could be skewed if households buy more than expected.
“The main source of uncertainty relates to the size of the behavioural effect, both in terms of the timing and incrementality of purchases,” the report said.
“If more households shift the timing of their purchases to take advantage of the tax holiday period, the negative impact on federal revenues could increase. Alternatively, if households are more inclined to purchase more than they otherwise would, it would also negatively impact federal revenues.”
Items exempt during the two-month tax break include, with certain restrictions, restaurant meals; beer and wine; some pre-mixed alcoholic beverages; physical books and printed newspapers; some items for children such as clothing, footwear, diapers, car seats, and toys and puzzles; and various kinds of electronics like video game consoles. Christmas trees will also be tax-exempt.
