December 14 marked the beginning of a two-month federal sales tax holiday for all Canadians. The program, hastily passed by the Trudeau government, promises to be a gift for Canadians at a time of year when finances are normally tight. This tax reduction on many items commonly bought around the holiday time may seem like a welcomed holiday gift. In fact, it is an ill-timed, ill-thought-out gimmick that the Trudeau government and Canadians can ill afford.
The items exempt from federal sales tax include meals out and delivery/takeout, some clothing and toys for kids, and some electronics, books, and magazines. The exact definitions, though, are as clear as a muddy river. Toys are exempt, including building toys—yet Lego building sets are not because there are adults who collect Lego. Video game systems and physical game cartridges are also exempt, and while adults may play those games, there is no age restriction for what is—and is not—tax-exempt. Card games, trading cards, and sports cards are exempt. So adult sports and game card collectors (Pokémon) will not pay federal tax on their purchases. For all exemptions, you must be able to buy the physical product; digital downloads are not included. Christmas trees and decorations are also exempt, which makes little sense with less than two weeks remaining before Christmas. What an empty gesture.
If the above seems confusing so far, the government also exempted alcohol sales on most beers, wines, ready-made mixed drinks—for all alcohol up to seven per cent alcohol by volume (ABV). This may be a way for shoppers and retailers to drown their confusion from the exemption list and their financial sorrows.
There are many reasons this tax exemption is bad policy, starting with the cost. The Parliamentary Budget Office has estimated that the two-month tax holiday will cost the Canadian government $1.46 billion in lost revenue. Canada already is running a deficit estimated to be at or higher than $40 billion; there is no way that increased consumer spending over the two-month period will trickle the lost revenue indirectly into government coffers. Canada has run a budget deficit since 2001 with no end in sight. There is a higher cost to this tax cut for Ontario, New Brunswick, Prince Edward Island, and Nova Scotia, as those provinces will lose out on over $1.2 billion in revenue as their sales taxes are harmonized with the feds. None of these provinces are financially well off to afford a revenue cut.
For businesses, the Canada Revenue Agency has said they will be flexible so long as reasonable efforts are made to avoid tax mistakes. Still, a two-page summary from the federal government does little to help with reprogramming tax codes in point-of-sale systems, instructing staff, and following the new tax changes.
Everyone likes to save money when they shop, and Canadians will save at least some tax on many items they buy between now and February 14, 2025. That said, this frivolous scheme is nothing more than a desperate attempt to buy votes with your wallet, when the country cannot afford it. These poor choices will add on to the larger bill that future generations will have to pay when it comes due.
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