The impact of the Liberal government’s plan to give Canadians a tax break and a cheque is up for debate, as economists weigh how meaningful the support will be for Canadians and whether the measures will contribute to inflation.
Prime Minister Justin Trudeau announced last week he would remove the sales tax on certain “holiday essential” items for a two-month period and send a $250 cheque to Canadian workers making less than $150,000 per year.
Economists who spoke to The Epoch Times provided differing takes on how the relief measures could impact the economy. Some are concerned it could impact the Bank of Canada’s management of inflation, while others say the ramifications could be minimal. Others questioned how impactful the measures would be in providing relief.
Trudeau said the measures are necessary to help Canadians who are struggling with the high cost of living.
Inflation had come down in recent months, entering the Bank of Canada’s target range of between 2 to 3 percent, and Trudeau took credit for the drop.
“We brought down inflation and we’re seeing interest rates come down as well, which is making a huge difference for people and for families,” Trudeau said on Nov. 22 in Brampton, Ont.
There are now questions as to whether sending billions in cheques to Canadians and temporarily cutting the sales tax will spur more demand and push inflation higher.
For the time being the measures are aspirational, with the approval of Parliament being necessary as they relate to the budget and taxation. In addition, the House has been gridlocked since late September over the government not releasing all documents pertaining to the embattled federal green fund.
The measures are, however, supported by the NDP, which will provide the minority Liberal government the necessary political backing to move forward.
Ian Lee, an associate professor at Carleton University’s Sprott School of Business, said the measures make it more likely the Bank of Canada will not proceed with a large 0.5 percent interest rate cut at the next policy rate announcement in December.
Inflation was already on an upward trend as it ticked up from 1.6 percent to 2 percent in October.
“I think reducing interest rates is far more important than giving out cheques to people so they can buy beer and potato chips,” Lee said, in reference to the two measures proposed by the government.
As part of the measures, Ottawa wants to lift the GST/HST on food items such as groceries, chips and snacks, candies, cakes, some alcoholic beverages, as well as on goods such as children’s toys and clothes.
As for the $250 cheque, it would be sent to 18.7 million Canadians who worked in 2023 and made up to $150,000 net.
Lee said Canadians making $150,000 net probably don’t need a $250 cheque, noting these individuals gross around $250,000 and this includes some doctors and top public servants.
Lee said the only value he sees in the measures is they will help restaurants, which he said are experiencing “very, very tough times.” The Carleton professor said making the tax break permanent or giving a break on essentials like home heating would have been more impactful.
“Reducing interest rates is substantive and important, reducing the taxes paid on home heating and gasoline in the car so people can drive their kids or go get groceries is much more important than reducing the taxes paid on junk food at the grocery store,” he said.
Not Inflationary ‘At All’
Mario Seccareccia, an economics professor at the University of Ottawa, doesn’t share concerns that the new measures could contribute to inflation. He said certain things could be impacted, but doesn’t see the measures being inflationary “at all.”“There’s no way it’s going to give you a big effect,” he said. “Those that were talking about this as [being] an inflationary thing, I don’t believe it.”
Seccareccia referred to economics theory on permanent income and permanent consumption, arguing people spend according to their long-term income position, not short-term benefits. “That’s how they consume, they don’t do it because they get a cheque of $250, or a tax cut,” he said.
Seccareccia sees the measures having a limited impact on inflation, while a food systems expert says the impact on food consumption may also be minor.
“When I look at some of the measures affecting food, the impact will be modest, but of course, Canadians need all the help they can get,” said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University.
Charlebois calculated that by eliminating the GST/HST at grocery stores on the proposed list of items for a two-month period, the average Canadian will save $4.51 in taxes. Savings on food service would be nearly $20 over the same period.
The federal department of finance calculates that a family spending $2,000 on qualifying goods, such as children’s clothing, snacks, and restaurant meals, would save over $100 in GST over the two-month period.
Charlebois, who specializes in tracking food prices, said the temporary nature of the measure could have negative effect. He said grocers could increase their prices to catch the void left by the tax holiday.
Charlebois said a more impactful measure would be to eliminate the GST on retail goods “permanently.” He also argued the government’s proposal to hand out $250 cheques will contribute to inflation, “adding fuel to the fire.”
Political Impact
The proposed tax break and cheque are economic measures meant to help struggling Canadians, but they’re also part of a political play, said one policy expert.Eric Miller, president of Rideau Potomac Strategy Group, said Canadians feel their purchasing power “doesn’t go as far as it used to” and the government targeted its list of items directly at people who are feeling the pinch around the holidays.
“If I’m in the Prime Minister’s Office and I’m trying to win an election, there are reasons why they would do this,” he said.
“Part of the art of governing is blending politics and policy, and every government of every stripe comes to do that after a while.”
Conservatives have called the Liberal government’s proposed sales tax break a “trick,” noting how the excise tax on alcohol is set to increase by 4.7 percent in April, after the proposed tax holiday will end. The Tories have long proposed abolishing the carbon tax permanently as a measure to improve affordability.
Trudeau has defended his record of investments in social programs and says Conservatives are only proposing cuts.
“What the economy needs is for people to be able to afford their groceries,” Trudeau said on Nov. 22.
“What the economy needs is people to be able to be optimistic about the future we’re building with good jobs, good opportunities for their kids. We’re focused on Canadians, I'll let the bankers worry about the economy.”
