Canada’s Higher Sales Tax Credit for Groceries Is the Wrong Fix

Canadian Prime Minister Mark Carney’s plan to increase a goods-and-services tax credit to offset existing taxes on basic groceries appears to be a political response to voters’ concerns about the growing cost of living.

The government is framing the GST credit as pragmatic and compassionate, putting more money in people’s pockets right now when price increases feel relentless. But Canadians have seen this type of move before.

Think of Justin Trudeau’s magnanimous doubling of the same tax credit for six months back in 2022, followed by the later good-and-services tax-free zone from Dec. 14, 2024 to Feb. 15, 2025, that temporarily allowed Canadians to buy essentials like groceries and children’s clothing largely tax free.

Then and now, the unresolved questions that remain are what problems will all of these cash relief payments actually solve and what problems will they continue to create? There are better alternatives, such as not taxing basic groceries—or any other living essentials—in the first place.

The Credit Explained

Assuming the legislation passes—and early signs suggest it will now that the Conservative opposition recently greenlighted the Liberal-backed measure—Canada will be further increasing the GST credit this spring.

The program, titled the Canada Groceries and Essentials Benefit, will expand the existing GST credit in this area in two ways: a one-time top-up payment, payable no later than June and equal to 50% of the annual existing GST Credit; and a 25% increase in its value for five years starting in July.

A household earning CA$45,000 ($33,000) could see an additional CA$402 for a single individual without children, CA$527 for a couple without children, and CA$805 for a couple with two children, according to the Department of Finance Canada.

Sounds good on paper, but that may be where it stops, especially when Canada’s current economic reality sinks in.

Problems Solved, Created

First, not everyone will get the GST credit. Eligibility is based on modest income thresholds. This means the credit won’t be enjoyed by much of Canada’s struggling middle class, described as falling within an individual income range of CA$57,000 to CA$178,000.

This same middle class is struggling to get in (or stay in) Canada’s housing market. Those below those income points may never be able to own a house in the current Canadian marketplace. A recent report from Now Toronto estimated that it could take nearly 40 years to save up for a down payment for a house.

The credit appears aimed at Canada’s new “renter class,” namely those Canadians whoithrough no fault or choice of their own—have been priced out of the homeownership dream, arguably by the inept fiscal policies of a government that’s now passing back a few cookie crumbs in the form of a GST credit.

Since Trudeau took office in 2015, Canada has realized around $700 billion in deficits. The inflation that took root in Canada, coupled with historically anomalous low interest rates, drove up the costs of Canadian homes, well beyond anything the renter class can afford–and above what many in the middle class can afford as well.

And it’s the latter that may be in the midst of saving for that first house or trying to pay it off–struggling with the same increased grocery costs and straining under increasing mortgage rates.

Yet with this GST credit, the middle class receives nothing. It smacks of unfairness. Two families standing in the same grocery aisle and facing the same prices, pay the same GST at checkout. One eventually receives a rebate, while the other does not, and the difference has nothing to do with whether their purchases were essential.

The Bigger Picture

Tax rebates like the GST credit are politically attractive, especially to the politicians that dole them out, seemingly around election time. The average person doesn’t react with outrage to an unexpected extra few hundred dollars appearing in their bank account.

At a micro level, the GST credit offers limited help to a minority of taxpayers. At a macro level, it fails to address Canada’s root problems: Inflationary pressures from government overspending over the last decade plus, and the resultant cost increase for basic groceries and living essentials, including housing.

The GST credit also raises a deeper moral question: Why is Canada taxing living essentials at all?

The UK effectively zero-rates most basic food, children’s clothing and footwear, and books. Australia exempts many personal hygiene products from their version of the GST altogether.

Canada should do the same. Some estimates suggest removing GST from groceries alone would cost the government CA$1 billion dollars a year, which would be a fraction of the CA$50 billion to CA$70 billion in annual net tax revenue from the GST/HST, according to CRA data. The lost revenue could be offset by reducing government waste and overspending.

Removing GST from groceries and other basic necessities would benefit all Canadians. No income thresholds. No retroactive tax credits. No more Canadian governments-in-power doling out these credits for political gain. Canadians deserve better.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Robert G. Kreklewetz is founding partner of Millar Kreklewetz in Toronto and has more than 35 years of experience in international trade, customs, and indirect tax.

Peter Krol is an associate at Millar Kreklewetz.

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