A new report by the Bank of Montreal backs what Canadian retailers have been saying for months: cross-border shopping is costing the Canadian economy and plans to raise the duty-free limits are about to make the issue worse.
BMO's deputy chief economist, Doug Porter, said in a report released Thursday that although the price gap between the same items for sale in Canada and the U.S. is narrowing, cross- border shopping appears to be intensifying.
Porter said that Ottawa's plans to increases the duty-and-tax free limits starting June 1 will combine with other factors "to unleash a wave of Canadians cross-border shopping this summer in numbers not seen in two decades."
Porter noted there are already more than 50 million visits to the U.S. by Canadian residents annually. Those numbers will likely swell when the new duty-and-tax free limits kick in.
"And you thought the line-ups to get into the United States were long before," Porter quips in the report.
Starting June 1, Canadians who travel to the U.S. for 24 hours or more will be able to bring back $200 worth of goods without paying tax or duty at the border. The current limit for that time period is $50.
The limit on stays longer than 48 hours rises to $800, from the current two-tiered levels of $400 and $750, depending on the length of stay.
Those who cross the border for less than a day cannot bring anything back without paying duty.
The Bank of Canada estimates that cross-border shopping accounts for less than two per cent of Canadians' total consumer spending. But Porter doesn't buy that.
He says those are only the official numbers; the real numbers are likely much higher, since Canadians don't always report everything they buy when they cross the border.
"We would estimate that cross-border spending may, in fact, account for as much as 8 to 10 per cent of all outlays on items that can be moved across borders," he writes.
"If correct, that represents a real drain on domestic retail sales, employment, and government revenues -- a drain that looks to deepen."
Days after the federal budget was released last March, the Retail Council of Canada warned that plans to boost the cross-border tax exemptions would hurt retailers.
Sally Ritchie, vice-president of communications at the Retail Council of Canada told CTVNews.ca that although her group was not surprised by the changes, it was disappointed they weren't accompanied by a drop in import taxes imposed on merchants.
"Our merchants are not playing on a level playing field," Ritchie said at the time.
Porter's report suggested that the gap between consumer prices in the U.S. has narrowed somewhat in the last year, shrinking from 14 per cent on average this spring to 20 per cent last spring. But he cautioned that with only 18 items sampled, his report's findings are not necessarily representative of the average price difference between the two countries.
The Senate banking committee is expected to report later this year on the causes of the persistent price gap between the two countries, hoping to answer why there are still such wide difference in prices even with near parity in the value of the U.S. and Canadian dollars over the last few years.
