Prime Minister Justin Trudeau and Chrystia Freeland, Minister of Finance, visit Vince’s Market, a grocery store in Sharon, Ont. on Nov. 21.Chris Young/The Canadian Press
The federal government unveiled its multibillion-dollar plan to alleviate pocketbook pressures for households, dropping the GST on a wide range of products for a two-month period and sending most working Canadians a $250 cheque in April.
The measures will cost the federal government $6.28-billion, according to the Finance Department – $1.6-billion for the sales tax break and $4.68-billion for the cheques.
“These are things that recognize that people are squeezed, and we’re there to help,” Prime Minister Justin Trudeau told a press conference Thursday. He described the measures as “money that will help people buy the things they need and save up for the things they want.”
“Our government can’t set prices at checkout, but we can put more money in people’s pockets,” he added.
The announcement comes just months after the Prime Minister dismissed the idea of sending Canadians money directly, arguing that it would be inflationary. He said Thursday that circumstances have changed because inflation has cooled.
Mr. Trudeau’s previous attempts to assuage a disgruntled electorate, including income-tested dental care, cheaper child care, a national food program and more money for housing, have not swayed voters. The minority Liberals have trailed the Conservatives by double digits in public-opinion polling for well over a year.
As well, for the past two months, Justin Trudeau’s agenda has been stalled by a standoff in the House of Commons over the government’s refusal to release documents connected to a spending scandal.
The new stimulus package raises more questions about the government’s balance sheet. The Liberals had pledged to keep the deficit below $40-billion, but last month the Parliamentary Budget Officer said it was already on track to be higher than that, estimating the government would record a $46.8-billion deficit for the 2023-24 fiscal year.
The final tally for last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
What’s included in the GST cuts and what isn’t?
Christmas trees, kids’ clothing and toys, beer, wine, and restaurant meals are among the items that Canadians will no longer have to pay GST on between Dec. 14 and Feb. 15.
The $250 cheques will be tax-free and be sent to all Canadians who worked in 2023 and earned a net individual income of up to $150,000. The net income refers to income after deductions such as union dues and RRSP contributions but before taxes. To be eligible Canadians must have filed their 2023 taxes by the end of 2024. The government estimates that 18.7 million people will qualify for the cheques.
Bay Street’s view on Thursday was that the stimulus, especially when combined with the $3-billion worth of cheques that Ontario will also send out next year, will spur economic growth in the short term and kill the chances for a larger interest rate cut from the Bank of Canada next month.
“The announcement should all but close the door to a 50-basis-point cut next month,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote in a client note, referencing the next Bank of Canada rate decision on Dec. 11. Fifty basis points is equal to half a percentage point.
Benjamin Reitzes, a managing director at BMO, said the stimulus announced by Ottawa would have a meaningful impact and “should solidify expectations” for a rate cut of 0.25 percentage points in December.
“We’re assuming a good chunk of the stimulus cheques will be saved, but the GST/HST rebate will drive additional spending,” he wrote in a client note.
The NDP first proposed a permanent GST cut on essential goods and household bills last week. The Liberals only applied the sales tax cut to part of the proposed NDP list and made it temporary.
NDP Leader Jagmeet Singh called the government’s announcement a “letdown,” but better than nothing.
“It’s not the way we would have done it, but we absolutely need to get a break for people,” he told reporters.
If his party forms government, he added, the GST measures would be permanent
The NDP Leader said his party will not help permanently end the standoff in the House of Commons because the Liberal need to release the documents connected to the green technology fund spending scandal – as requested by a majority of MPs.
Instead the NDP will only agree to adjourn the document debate for a single day in order to pass the required legislation for the affordability measures.
It was not immediately clear when these measures will be introduced in the House or how the parties would be able to pass it all in a single day. Mr. Trudeau said Thursday he hopes all parliamentarians pass the measures quickly and said he’s “pleased” the NDP is supportive.
“I am certainly hopeful that the NDP will see that a frozen Parliament doesn’t deliver for Canadians,” he said.
Retailers to benefit from GST break, but logistical headaches may be ahead, say industry observers
Conservative Leader Pierre Poilievre declined to say whether his party will also support the spending, saying he needs to see more details before making a decision.
“I don’t vote for press releases and press conferences,” Mr. Poilievre said. “Let’s see what they put before us.”
Still he dismissed Mr. Trudeau’s announcement as a “tax trick” that won’t make up for next April’s increase in the consumer carbon price. Mr. Poilievre said the temporary tax break and $250 cheques are being issued for political reasons – for the Prime Minister and NDP Leader to keep their jobs.
The Conservative Leader also noted that he would remove the GST on housing and cancel the consumer carbon price, both permanently.
Bloc Québécois Leader Yves-François Blanchet said he doesn’t yet know how his party will vote on the new policies, but he dismissed them as an effort to buy votes.
The GST changes also lift all of the sales tax on eligible items in provinces where the harmonized sales tax applies, such as Ontario and Newfoundland and Labrador. In provinces that have separate provincial and federal sales tax, only the federal tax will be lifted through this announcement.
Ontario Premier Doug Ford’s office said his government has already eliminated the provincial portion of the HST on children’s clothing, shoes, diapers and some food and beverages, and called on Mr. Trudeau to “ditch” or at the very least pause the coming increase to the carbon price set to take effect April 1.
The Canadian Chamber of Commerce applauded Ottawa’s announcement, calling it a recognition that the affordability crisis is still hurting Canadians. But the business lobby urged the federal government to also address the “root causes” of the issue, saying the Liberals are still missing “a clear plan to revive our economy.”
With reports from Matt Lundy and The Canadian Press