Canadian shoppers are benefiting from a temporary Goods and Services Tax/Harmonized Sales Tax (GST/HST) tax holiday on a wide range of goods and services from December 15 to February 15, 2025, aimed at easing the financial burden many Canadians face during the holiday season. While basic groceries like fresh fruits, vegetables, milk products, fresh meat, poultry, and eggs already enjoy an exemption from GST/HST, prepared foods such as sandwiches, salads, pre-made meals, and snacks like chips, candy, and baked goods will also see the tax dropped. In addition, non-alcoholic drinks, including coffee, tea, carbonated drinks, and juices, alongside certain alcoholic beverages like wine, cider, and sake, are eligible for the tax break.1

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The move has been met with both praise and skepticism. Dr. Ross Hickey, an expert in economic policy, discussed the motivations behind the tax holiday and the potential effects on consumers and the economy in an interview with The Phoenix.

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Dr. Hickey suggests the tax holiday was motivated by two main factors: addressing the ongoing cost of living crisis and improving the political standing of the government. “There is a cost of living issue in the country where people are unhappy about rising prices,” he says. “Although inflation peaked at 8% in mid-2022, it has since slowed to around 2% annually. The inflation shock that we had around COVID put pressure on households, making it harder to afford everyday essentials,” Hickey explains.

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The timing of the tax break also coincides with the holiday season, a period when Canadians traditionally spend more money on gifts, dining out, and other discretionary purchases. “The motivation was to make that cheaper for people by removing the GST from a number of items,” Hickey says, acknowledging that the holiday season offers an opportunity to provide immediate relief to families during a high-spending time.

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However, Hickey also believes that politics played a role in the decision. “This was an announcement made by a government that has been facing a lot of criticism,” he notes, referring to recent polling data showing a decline in support for Prime Minister Trudeau’s administration. “It’s a popularity move – one that could boost the government’s approval ratings in a period where they’ve been under fire for various internal issues.”

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While the GST tax holiday may offer short-term relief, Hickey believes its long-term impact will be minimal. He explained that the tax break is likely to result in a shift in consumption rather than a significant increase in overall spending. Although the removal of GST might reduce prices on certain goods, it’s unclear whether consumers will actually purchase more of these items. It was noted that prices typically rise by 2% annually, making it difficult to determine how much cheaper products really are. Furthermore, retailers could adjust their sale prices during this period, which might neutralize the effects of the tax holiday.

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Hickey notes that the holiday could also shift when consumers make purchases. He says that people may "bring forward spending that they would have made later in the year," leading to a temporary spike in sales without necessarily increasing annual consumption.

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The broader economic implications are also a concern. “The federal government stands to lose around $1.8 billion in tax revenue due to the holiday, a figure that accounts for the GST tax break on qualifying items. That’s about 1% of the federal government’s total revenue,” Hickey points out. While this loss is relatively small in the grand scheme, it still represents a significant amount of money that will need to be made up elsewhere.

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Hickey also highlights the impact on provinces that have an HST, where the federal government collects both the GST and provincial portion of the sales tax. “When the federal government imposed the GST holiday, it also meant that provinces with HST wouldn’t receive their portion of the tax revenue,” he says. The total amount of foregone revenue for both federal and provincial governments is estimated at $3.6 billion. This may lead to citizens paying more money to the government in the future as they try to make up for the lost revenue.

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Ultimately, Hickey believes the tax holiday will not solve the underlying issues that have led to rising costs of living. “Come February 15, when the GST tax holiday ends, the affordability problem will still be here,” he warns. “People may enjoy the savings now, but they’ll face the uncomfortable reality when prices go back up.”