The government of Canada has announced its plans for a temporary tax break by exempting GST/HST on certain items during the holiday season from Dec. 14, 2024 to Feb. 15, 2025. The legislation to enact the tax break has cleared the House of Commons and is now awaiting Senate approval.
Another key economic concern is the potential for “price stickiness,” where businesses fail to pass tax reductions onto consumers.
Some businesses will likely see a boost in sales, however. Since all types of restaurant foods — dining in, takeout or delivery — will be covered by the tax break, restaurants will have a unique opportunity to attract more customers.
There will be winners and losers from this tax policy, with the benefits disproportionately favouring higher-income earners. Wealthier households, who are less affected by inflation, are better positioned to take advantage of the tax break by spending more and saving more. These families will be able to more easily adjust their purchasing habits, such as stockpiling a year’s supply of baby diapers during the tax-free period. It’s important to note that many essential grocery items, like produce and milk, are already tax-free under Canada Revenue Agency rules. The tax break will cover taxed items like carbonated drinks, candies, snack foods and alcoholic beverages. This means higher-income households, which spend more on discretionary items, stand to gain the most from a reduction in sales tax benefits.
This holiday tax break could exacerbate economic inequity — contrary to its stated objective. Taxes play a key role in reducing inequality, and any changes to the tax systems should consider that. Unfortunately, this GST reduction appears to fall short.
Moreover, the benefits are not distributed evenly across Canadian provinces and territories. Consumers from provinces with HST will not pay any taxes for the items listed in the policy, but those with standalone provincial sales taxes will still have to pay that tax. Alberta, which only charges GST, will be tax-free.