Rather than implementing a temporary tax holiday, Ottawa should have permanently eliminated the GST on food
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It’s official. Starting Dec. 14, Ottawa’s two-month GST/HST holiday will temporarily reduce the tax to zero per cent, offering Canadians a reprieve until Feb. 15. While this initiative seems like a gift for consumers during the holiday season, it comes with unintended consequences that could harm consumers, retailers, and the broader economy.
Under the policy, provinces with standalone provincial sales taxes (PST) – such as British Columbia (seven per cent), Saskatchewan (six per cent), Manitoba (seven per cent), and Quebec (9.975 per cent) – will continue to apply these rates. Meanwhile, provinces using the harmonized sales tax (HST) – Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, and Ontario – will see the total tax rate on eligible items drop to zero per cent. Alberta, which already lacks a PST, remains tax-free.
At first glance, this may seem like a win for Canadians. Grocery stores won’t charge taxes on snacks and ready-to-eat items, and restaurant meals will also see a significant tax cut. However, the benefits are unevenly distributed, and the policy introduces complications that could outweigh its advantages.
Uneven savings and business strain
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For most Canadians, the grocery store tax savings are minimal – an estimated $5 over two months. While negligible for consumers, this creates significant logistical challenges for grocers, who must update systems to reflect the tax holiday for thousands of products. These updates, along with operational disruptions, will impose costs on an industry already operating on razor-thin margins.
Restaurants, in contrast, stand to benefit more. With Canadians spending an average of $180 per month dining out, families could save between $60 and $90 during the tax holiday. This relief may help restaurants recover from recent economic challenges, but the benefits are uneven. Quebecers, for instance, might cross into Ontario or New Brunswick to dine tax-free, saving nearly 10 per cent. These cross-border dynamics disadvantage Quebec restaurant owners and could exacerbate regional tensions.
Inflationary risks and market instability
While the tax holiday offers temporary relief, it carries the risk of inflationary pressure. Retailers and restaurants, adjusting to the absence of tax revenue, may opportunistically raise prices. A similar phenomenon occurred when Prime Minister Stephen Harper reduced the GST by one per cent in 2006 and 2008 – prices initially spiked before stabilizing. This history suggests that short-term tax changes often lead to market instability.
Taxes tied to food are particularly volatile. Whether introduced or removed, they disrupt market dynamics in ways that often disadvantage consumers. The temporary nature of the GST/HST holiday increases the likelihood of opportunistic pricing, potentially leaving Canadians paying higher prices long after the tax is reinstated.
Regressive and ineffective taxation
Taxes on food disproportionately affect low-income households, making them inherently regressive. Proponents of taxing “unhealthy” foods argue these measures encourage healthier choices, but evidence suggests otherwise. Newfoundland and Labrador’s soda tax, introduced in 2022, provides a cautionary tale. While it generated $6.1 million in its first year and is projected to double in 2023-24, it has not significantly reduced soda consumption or improved public health. Instead, it has become a revenue generator with little tangible benefit to consumers.
At grocery stores, taxes on food are often hidden, and only about 25 per cent of Canadians check their receipts regularly. Transparent policies, coupled with consumer education, are more effective than stealth taxes in promoting better health outcomes over time.
A missed opportunity for long-term reform
Rather than implementing a temporary tax holiday, Ottawa could have permanently eliminated the GST on food. Such a measure would shield consumers from market instability triggered by policy reversals and reinforce food affordability as a key component of Canada’s social safety net. A permanent change would also eliminate the logistical burden on retailers and create a more predictable pricing environment for consumers.
The GST/HST holiday might seem like a timely relief, but its potential costs outweigh the benefits. Food pricing is a delicate balance, and policy shifts have ripple effects across the supply chain. For many Canadians, the long-term instability caused by this measure could leave them worse off.
By taking a longer-term view, Canada could better address the root causes of food insecurity and market volatility. A permanent solution – rather than a fleeting holiday – would offer lasting relief and stability for consumers and businesses alike.
Dr. Sylvain Charlebois, a Canadian professor and researcher specializing in food distribution and policy, is a senior director of the Agri-Food Analytics Lab at Dalhousie University and co-host of The Food Professor Podcast. He is frequently cited in the media for his insights on food prices, agricultural trends, and the global food supply chain.
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