This week, Canadians received what seemed like an early gift this holiday season: the federal government approved a two-month break from GST on a select group of goods aimed at easing the financial strain of the festive season. While the temporary move might offer some minor relief to Canadians facing a cost-of-living crisis, it’s the wrong medicine for our economy and our ailing vision of an equitable society. Here’s why.
GST is a regressive tax, and research shows that removing value-added taxes like the GST on essential items can be moderately effective for alleviating cost-of-living pressures for lower-income consumers. That is the rationale behind GST exemptions already in place for basic food items like milk, bread and produce. However, extending exemptions to non-essentials such as gifts, toys and restaurant meals, as adopted by the government, swings most of the benefit towards wealthier Canadians, who typically spend more on these items.
The temporary nature of this initiative, combined with the basket of goods receiving a GST exemption, implies that the real goal here is to increase consumer spending during a critical period for the retail sector. The biggest beneficiaries of this big holiday spend are bound to be the biggest retailers of GST-exempted goods - companies like Walmart and Amazon. Boosting their profits won’t help anyone but their shareholders. Over the last two decades, studies have shown while profits for large publicly traded companies continue to soar, both wages and business investment have stagnated. These profits are funneled instead into wealth accumulation for a concentrated few, while further entrenching the market dominance of these corporations. Neither outcome helps build an affordable or equitable future for the majority of Canadians.
We also can’t ignore what a GST holiday and the promised $250 rebate for the majority of workers set to follow early in 2025 will cost us. The $6.2 billion in unplanned spending will inevitably put pressure on government services to cut budgets. Essential social infrastructure—such as education, healthcare, and affordable housing—are already critically underfunded. These areas not only underpin Canada’s quality of life but also drive long-term economic competitiveness. What we need now is a significant influx of public investment in these sectors. A tax cut, especially one without compensatory revenue from other sources, risks taking us in the opposite direction.
A better approach would have been to adopt the NDP’s proposed model, which combines GST relief with a tax the rich measure. Just days before the government’s announcement, NDP leader Jagmeet Singh unveiled a plan to permanently remove GST from a focused basket of essentials, such as diapers, home heating, and internet bills. This proposal would be funded by an excess profits tax targeting large corporations that leveraged market power during the pandemic, the war, and inflation to rake in outsized profits.
An even more impactful response to Canada’s cost-of-living crisis would involve a comprehensive package of tax reforms designed to address income and wealth inequality. This could include measures such as an excess profits tax, a wealth tax, and higher income taxes for the top 0.1%. The revenue generated could be directed toward targeted, evidence-based initiatives that deliver tangible benefits to Canadians within months or years.
Why not help people escape debt through student loan forgiveness or accelerate the expansion of dental care coverage? Why not broaden pharmacare to cover more than just diabetes medications and contraceptives, enabling Canadians to prioritize their health without financial strain?
Long-term investments in critical areas—such as non-market affordable housing, public healthcare infrastructure, and accessible, high-quality education—can create lasting affordability, benefiting not only today’s Canadians but also future generations.
If we truly want to ease financial pressures for all Canadians—not just in the holiday season but year-round—it’s time to move beyond superficial fixes and invest in structural changes that make life better for everyone.
