As the holiday season approaches, Prime Minister Justin Trudeau’s GST tax break promises to provide some financial relief to Canadians, but critics argue it’s a short-term solution with political motives.
While families anticipate some savings on groceries, toys and holiday essentials, small business managers like Elizabeth McKenny remain skeptical, calling it “a political move” aimed at winning votes rather than addressing the cause of economic hardship.
“It is a trick to get Canadians to forget about the last four years of the Liberal government,” said McKenny, a manager at Growing Kids at Billings Bridge. “I believe that the government’s actions are designed to manipulate public opinion and ensure continued support for their policies,” she said.
While McKenny admitted she occasionally removes the GST from children’s clothing to boost sales, she finds the federal tax break insignificant as it benefits low- and high-income earners.
And she criticized the administrative burden the policy places on small businesses.
“I envision small business owners needing to distinguish between items that are tax-exempt and those that aren’t. That is a whole lot of work,” she said.
McKenny sells only children’s clothing, which makes it easier explaining to customers about the new policy.
Starting Dec. 14, Canadian residents get a GST/HST tax exemption on groceries, toys, kids clothing, video games and consoles, Christmas trees, catered meals, wine, beer, candy and snacks. The exemption runs until Feb. 15.
While the Conservatives and Bloc Québécois voted against the tax break’s legislation, Pierre Poilievre, the Conservative leader and vocal advocate for tax cuts, says the GST break “isn’t a tax cut. … [this] is an inflationary, two-month temporary tax trick that will drive up the cost of living.”
The policy estimates a $1.6 billion reduction in federal tax revenue, potentially rising to $2.5 billion if provinces match the exemption, said David McDonald, a senior economist at the Canadian Centre for Policy Alternatives.
“The policy does not specifically target low-income renters or food bank users,” said McDonald. “I would suggest that income transfers or a GST credit top-up would have been more effective in alleviating poverty.”
Among the tax-exempted items, McDonald explained that food purchases are less reactive to price changes, so the impact on grocery store food might be minimal. Restaurant purchases might increase, but overall expenditures are unlikely to change significantly.
He said some businesses might not share the full savings with consumers, potentially keeping some for themselves.
“The tax break applies to everyone buying goods this holiday season. It is not targeted to low-income families and individuals,” said Raphael Clement, tax lawyer and a PhD student at McGill University whose research is on international taxation.
Clement said the government should explore more targeted tax relief options, such as taking off tax on some essential items, to better support low-income families.
He said that the tax break might lead to increased spending on essentials such as diapers and wine in the short term, but he questions whether such spending habits will benefit the intended low-income families.
Only four per cent of businesses expect increased sales, with many anticipating delayed purchases, according to an internal survey by the Canadian Federation of Independent Businesses.
“Many CFIB members actually believe that people will simply alter their buying behaviours by delaying purchases they would otherwise have made,” Christina Santini, the director of national affairs at CFIB.
She said stores may need more staff and inventory to meet demand, but consumers might delay purchases until Dec. 15.
Santini said one of the impacts of the policy is that business owners must update their systems to reflect the new tax rules, which is a complex and costly. “The average cost of updating inventory for small businesses is about $1,000, which is significant for businesses with small margins,” she adds.
She said the tax break is not equitable as it only benefits certain goods, leaving many small businesses unaffected.
She emphasizes the importance of small businesses for local economies, noting that while large multinational companies retain only 11 cents of every dollar spent locally, small businesses retain 66 cents.
“Small businesses support local jobs and services, creating a ripple effect in the community,” she said. “We should better support them all.”
Santini implores the government to communicate better with small business owners to ensure they have the tools and clarity to implement the tax break and also be flexible and patient with small business owners in terms of any errors made in good faith when implementing the tax break.
She adds that the CFIB wants the government to consider alternative policy measures, such as not increasing the carbon price but providing more direct income support to households, to better support small businesses and individuals.
James Bowen, a professor at the Telfer School of Business at the University of Ottawa, whose research interests are in small businesses, said the tax break may not provide as much savings as expected, especially in provinces that already have GST/HST exemptions on certain items like children’s products. The actual federal tax savings could be quite small.
“Individuals should carefully review the list of eligible items to understand what qualifies for the tax break in their province, as the details matter,” he said.
For businesses, he said the temporary nature of the tax break could disrupt supply chains and staffing, as businesses may need to ramp up capacity to meet a spike in demand and then scale back after the two months.
Elizabeth McKenny said she would prefer longer-term measures.
“What I hope to see is a GST/HST exemption on all essential items permanently.”
