Conservatives propose "tax holiday" for GST in December to lower costs, spur spending

Aug 17 2021, 12:44 pm

The federal Conservatives are proposing a “holiday” on the federal goods and services tax in December to boost retail spending, but experts question whether it’s an effective use of government dollars.

Party leader Erin O’Toole said the policy would help Canadians who have been struggling to make ends meet during the pandemic, while also supporting businesses by encouraging spending.

“We have a housing crisis in Canada, we have a cost of living crisis in Canada, we have inflation for the first time in decades being an issue,” said O’Toole at a campaign stop in Vaughan, Ontario.

“December is going to be the end of a very difficult year for Canada, and we think Canadian families deserve a break.”

The proposed plan would only apply to in-store retailers to prevent U.S. companies with large online presences from benefiting, O’Toole said.

He said the policy represents $1.5 billion in savings for Canadians.

However, the Canadian Federation of Independent Business called the tax holiday “a bit gimmicky.”

“What a short-term GST holiday would likely do is shift sales from one month to another, leading to very little change in overall consumer spending,” CFIB president Dan Kelly said in a statement.

Kelly also questioned how the break on in-store purchases only would work and said small firms would have the hassle of reprogramming their point-of-sale machines.

“The Tories have made many strong small business platform promises, such as significantly expanded (Canadian Emergency Business Account) loans, but the GST holiday is not one of them,” Kelly said.

A GST holiday would represent a five per cent savings on many purchases across the country.

David Macdonald, senior economist with the Canadian Centre for Policy Alternatives, also said it’s not a bad idea to give people incentives to spend money and boost certain sectors of the economy, but a GST break is not the most targeted way to do it.

“I guess the question is what’s the goal of this policy. Is it to save people some money on expenditures or to move money into people pockets, or is the goal of the policy to try to improve economic growth,” Macdonald said.

“If the goal of the policy is to improve economic growth, particularly in sectors that are hardest hit, this isn’t terribly effective policy.”

He said a tax holiday in December is effectively subsidizing purchases that would’ve happened whether or not the tax break was in place.

He said a more effective option would be to implement the tax holiday in January or February to spur spending when retailers typically have a harder time.

Kevin Page, president of the Institute of Fiscal Studies and Democracy in Ottawa and a former parliamentary budget officer, questioned the need for a short-term stimulus measure when there has already been a significant economic rebound and many existing
stimulus measures.

“Given the strong rebound and significant fiscal stimulus already baked in the cake, do we really need more short term stimulus type measures?” Page said in an email.

Page said the tax holiday would also come with a hefty price tag, but added the policy secures political points ahead of the holiday shopping season.

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