GST holiday welcome but long-term affordability concerns persist: Alberta economists

A woman carries a shopping bag at West Edmonton Mall on Dec. 26, 2019. (Darryl Dyck/The Canadian Press)

An upcoming goods-and-services tax holiday is welcome news for Albertans and all Canadians, say economists, but issues surrounding affordability will likely persist across the country long-term.

Prime Minister Justin Trudeau announced on Thursday that the federal government will remove the goods and services tax for two months starting Dec. 14 on a large amount of items.

That means Albertans will save five per cent on items such as children's clothing and shoes, toys, diapers, restaurant meals, beer and wine, several snack foods, beverages and video game consoles. The break which is expected to cost Ottawa $1.6 billion will also apply to Christmas trees, both natural and artificial.

It's a welcome announcement for lower-income Canadians, says Moshe Lander, an Alberta-based economist with Montreal's Concordia University, as "the burden of the tax falls heavier on lower income than higher income Canadians."

He says it's also a calculated move by the governing Liberals, who have been lagging behind the Opposition Conservatives in polls with a federal election slated to be held in less than a year.

"If (the federal government) can give you relief from this tax, that maybe makes the playing field a little fairer, and I think that's the objective here, especially for a government that's really worried about its chances of re-election," Lander told CTV News Edmonton on Thursday.

"It needs every vote it can get."

Unlike every other province in Canada, however, Alberta does not have its own sales tax. The GST break is shaping up to be a headache for some jurisdictions such as in Ontario and Atlantic provinces, where the provincial and federal sales taxes are blended together into a harmonized sales tax, which means Canadians in those jurisdictions will get a larger break.

In Atlantic Canada, for example, Canadians will not have to pay the 15 per cent HST on the items affected by the federal tax break. But in Manitoba, Saskatchewan and British Columbia if the provinces don't waive their sales taxes, Canadians will only be relieved from paying the five per cent GST.

Agreements between the federal government and those provincial governments specify that Ottawa has to compensate provinces for changes to the harmonized sales tax that reduce their revenues by more than one per cent.

Regardless of a potential temporary boost in spending, it doesn't "fundamentally change" the view of how much Canadians are going to spend heading into 2025, says Mark Parsons, chief economist for ATB.

"It could shift some of the timing of the spending when those breaks occur, but it's really not going to solve a lot of the problems we're facing right now, which is really housing affordability challenges and some longer-term challenges the Canadian economy is facing, like low levels of productivity," Parsons told CTV News Edmonton on Sunday.

Lander said he, too, doesn't "have good news" when it comes to the temporary lower prices given that "Canada's productivity has been declining."

"The reason why wages have failed to keep pace with inflation is not just because inflation was high, but because Canadian productivity is outright falling, and productivity is the greatest predictor of standard of living," he said, adding that those whose wages lagged behind inflation won't "be able to recover that lost purchasing power."

"There's no indication that government policy is going to be able to boost it, so in the absence of a boost to productivity, it's going to be very difficult to go to your boss and ask for any raise bigger than inflation ... At best, you're going to stagnate where you are now, but over the last few years, regardless of inflation, because productivity has been declining, our standard of living has been falling much faster.

"That's going to affect lower income Canadians more than it's going to affect higher-income Canadians, because high-income Canadians, almost by their very nature, tend to be more productive, which is why there are higher-income Canadians to begin with."

The federal government also plans to send $250 cheques to Canadians who were working in 2023 and earned up to $150,000.

That means Canadians who were not working in 2023, including those who were receiving social assistance or were in retirement, will not be sent a cheque in April.

An estimated 18.7-million people will receive a cheque this spring, costing the government about $4.7 billion.

The "meaty" move to pause the GST and distribute cheques to millions could factor into an improving outlook for growth in 2025, Bank of Montreal chief economist Doug Porter said last week.

The overall plan, which will cost Ottawa about $6.3 billion, could put some upward pressure on inflation, he said Thursday.

"It's important to point out just how meaty this is," Porter said.

"It's quite a substantial move and it's important to note that the much bigger impact here will not be on the high-profile GST holiday. It's much more on the (rebate cheques)."

When combined with provincial rebates promised in Ontario, Porter said the money is likely to offer a significant boost to incomes and consumer spending at the start of the new year.

But he noted that the measures come at a time when inflation has cooled and policymakers are looking to boost the economy rather than tamp down price growth.

With files from CTV News Edmonton's Shelby Clarke and Miriam Valdes-Carletti, and The Canadian Press