Taxing groceries is wrong; GST holiday will make things worse

Problem with taxing food

Photo: Pixabay

Finance Minister Chrystia Freeland’s recent testimony before the Senate to support the government’s proposed temporary two-month GST holiday has faced significant backlash.

Senators criticized the measure as a flawed piece of fiscal policy driven more by political survival than sound economics. The proposal is particularly troubling because it could lead to unintended consequences, including opportunity pricing by grocers that may impact even non-taxable food items.

The concern lies in how grocers might exploit this temporary tax break.

By subtly raising prices on non-taxed goods, retailers could create additional inflationary pressures at the grocery store — a scenario that would further strain Canadian households already grappling with rising costs. Temporary measures like this GST holiday can also disrupt pricing strategies, encouraging grocers to adjust overall margins to compensate for the two-month tax break, leading to higher prices on non-taxable food even after the holiday ends.

Essentially, consumers could end up paying more in the long term for food that is currently not subject to GST. Canadians need to know this.

The Senate, often referred to as the “chamber of sober second thought,” has played an important role in scrutinizing this legislation to ensure it truly benefits Canadians. Observers have noted that with a fractured government prioritizing political survival, many recent proposals emerging from the House of Commons seem rushed and poorly conceived.

The GST holiday debate has also reignited broader discussions about the ethics and practicality of taxing food. The NDP has announced plans to introduce a motion to permanently eliminate the GST on grocery store food.

This measure deserves serious consideration, as Canadians currently pay between $1 billion and $1.5 billion annually in GST on groceries—a figure that continues to grow each year.

Part of the issue lies with “shrinkflation,” which has led to a growing number of food items becoming taxable. For example, a box of six granola bars is not taxed, but a box of five is.

Similarly, a container of ice cream over 500 ml is non-taxable, while a smaller one is taxed. Food economists estimate that 25 to 100 items each year cross into taxable territory due to such arbitrary thresholds.

This fiscal inconsistency disproportionately affects consumers and adds to the inefficiencies of Canada’s tax regime.

Some proponents of food taxation argue that taxing less nutritious items, such as sugary snacks or beverages, can discourage unhealthy consumption. However, studies highlight that empirical evidence does not support this claim. In Canada, no studies have conclusively shown that food taxes result in meaningful reductions in sales or significant changes in consumption habits.

The soda tax implemented in Newfoundland and Labrador in 2022 provides a clear example.

While the tax generated $6.1 million in its first year, revenue nearly doubled to $12 million in the following fiscal year—indicating that soda consumption increased. Economists attribute this outcome to the supply chain’s ability to absorb the tax and maintain consistent retail prices, effectively neutralizing any deterrent effect.

This policy, instead of promoting healthier choices, became a straightforward revenue-generating mechanism.

Taxing food is both ineffective and regressive. It disproportionately penalizes lower-income households, who often rely on lower-cost, less nutritious options out of necessity or limited awareness. Education and consumer awareness, they argue, are far more effective tools for encouraging healthier eating habits.

The GST holiday debate has exposed how Canadians have become increasingly conditioned to view taxes as a tool for influencing behaviour, despite little evidence to support this belief.

A permanent removal of the GST on grocery store food would represent a meaningful step toward addressing food affordability while respecting consumer choice. Rather than relying on punitive taxes, the focus should shift to education, access to affordable nutritious foods, and policies that support healthier lifestyles without imposing additional financial burdens on consumers.

Sylvain Charlebois is the director of the Agri-Food Analytics Lab at Dalhousie University and co-host of The Food Professor Podcast.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

The hidden cost of the federal government's tax holiday on food

GST/HST holiday on food

Photo: Pixabay

It’s official. Starting Dec. 14, the federal government’s two-month GST/HST holiday will temporarily reduce the tax to zero, offering Canadians a reprieve until Feb. 15.

While this initiative appears to be a gift for consumers during the holiday season, it comes with unintended consequences that could harm consumers, retailers, and the broader economy.

Under this policy, provinces with standalone provincial sales taxes (PST), such as British Columbia (7%), Saskatchewan (6%), Manitoba (7%), and Quebec (9.975%), will continue to apply these rates. Meanwhile, provinces using the harmonized sales tax (HST) — Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, and Ontario — will see the total tax rate on eligible items drop to zero. Alberta, which already lacks a PST, will remain tax-free.

At first glance, this may seem like a win for Canadians. Grocery stores will no longer charge taxes on snacks and ready-to-eat items, and restaurant meals will also see a significant tax cut. However, the benefits of this measure are unevenly distributed.

Minimal savings at the grocery store

For the average consumer, grocery savings over the two-month period are estimated at just $5. While this amount is negligible for most households, it creates a significant burden for grocers. Implementing system updates to reflect the tax holiday for more than 4,000 products on average will result in logistical headaches and additional costs. Retailers, already operating on slim margins, will likely feel the strain.

Restaurants reap the rewards

The benefits are much more pronounced for restaurants. Since the average Canadian spends roughly $180 per month dining out, families could save between $60 and $90 over two months. For restaurant operators, this measure could provide a much-needed boost, as taxes normally apply to all menu items.

However, regional disparities in tax rates could lead to unintended consequences. Quebecers, for example, may cross the border to dine in Ontario or New Brunswick, where they can save nearly 10% in taxes. This puts Quebec restaurant owners at a disadvantage. While interprovincial shopping migration may be less pronounced in Western Canada, these inconsistencies create unnecessary regional tensions.

Inflationary risks and market instability

While the tax holiday offers temporary relief, it also introduces inflationary risks. Retailers and restaurants, faced with the sudden absence of tax revenue, may adjust prices opportunistically. When Prime Minister Stephen Harper reduced the GST by 1% in both 2006 and 2008, prices initially spiked before stabilizing. This history highlights the potential for short-term price increases following tax changes.

Taxes, particularly those tied to food, leave lasting effects. Whether introduced or eliminated, they alter market dynamics and often disadvantage consumers. The temporary nature of this tax holiday increases the likelihood of opportunistic pricing, leaving Canadians paying higher prices long after the tax is reinstated.

Taxing food is regressive and ineffective

Taxes on food disproportionately penalize low-income households, making them inherently regressive. Proponents of taxing “unhealthy” foods argue that it encourages better consumer choices, but the evidence tells a different story.

Consider Newfoundland and Labrador’s soda tax, introduced in 2022. While it generated $6.1 million in revenue in its first year, the projection for 2023-24 has doubled to $12 million. Rather than curbing soda consumption, the tax has simply become a revenue generator, with no significant improvements in public health outcomes.

At grocery stores, taxes on food are often hidden unless consumers carefully check their receipts — a practice fewer than 25% of Canadians engage in regularly. Transparent policies and informed choices, not stealth taxation, lead to better health outcomes over time.

A missed opportunity

Instead of implementing this temporary tax holiday, the federal government could have eliminated the GST on food permanently. A permanent measure would shield consumers from market instability triggered by policy reversals and reinforce food affordability as a critical aspect of Canada’s social safety net.

While the GST/HST holiday might seem like a timely relief, it risks creating long-term instability. Food pricing is a delicate balance, and every policy shift has ripple effects across the supply chain. For many Canadians, the costs of this measure could outweigh the benefits, leaving them worse off in the long run.

Sylvain Charlebois is the director of the Agri-Food Analytics Lab at Dalhousie University and co-host of The Food Professor Podcast.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Rob Shaw: Eby confronts Trump tariff threats with wishful thinking

Dealing with U.S. tariffs

Photo: Province of B.C./Flickr

Behind the tough talk, British Columbia Premier David Eby and his government has been left to scramble to respond to an unexpected trade crisis.

Surrounded by a friendly labour audience in Vancouver on Tuesday, Premier David Eby talked tough in the face of U.S. president-elect Donald Trump’s threat to slap a 25 per cent tariff on all Canadian imports.

“We’re going to stand together, and we’re going to ensure that we negotiate from a position of strength,” said Eby. “That we negotiate hard and we ensure any decisions that are made are in the best interests of British Columbians and Canadians.”

A position of strength.

The line played well for the hyper-partisan, NDP-loyal, Trump-hating audience at the B.C. Federation of Labour, where the crowd could be relied upon to shout “shame” and applaud on command. But back in the real world, you’d be hard-pressed to describe the Canadian position as anything remotely resembling one of strength.

For starters, nobody saw this move coming by Trump. There was no preparation for 25 per cent U.S. tariffs in the multi-week post-election “transition” effort between the Eby government and the, er, Eby government. Nor did the Canadian government have in place a scenario for such a move, so early, before Trump has even officially taken office.

B.C. has no co-ordinated strategy to work with highly exposed sectors of B.C.’s economy in response. The Canadian diplomatic corps has been caught flat-footed.

Everyone is scrambling. That includes Prime Minister Justin Trudeau, who has called a snap meeting with premiers on Wednesday to come up with a “Team Canada” approach.

The premiers, already though, are divided.

Ontario Premier Doug Ford has publicly advocated for a bilateral trade deal with the United States that would shut out Mexico. Quebec Premier Francois Legault is calling on Trudeau to appease Trump and his “legitimate” concerns about the Canadian border being a gateway for illegal drugs. Ford wants retaliatory tariffs. Legault does not.

Eby, for his part, spent the last few months hammering Trudeau publicly for ignoring and mistreating the province financially, turning him into a punching bag for partisan points.

Trudeau now has to try and herd all these wayward leaders into a unified direction. While he struggles with that, Trump will be essentially unopposed on his end, with Republicans in U.S. controlling both the House of Representatives and the Senate, able to enact whatever the president says into law.

Trump has a strong mandate from American voters, who elected him decisively into office. In contrast, Trudeau appears to be a lame duck prime minister, walking into a slaughter in the next federal election. And Eby got hit hard by voters in the October election, only squeaking through by a bare majority of 22 votes. Hardly positions of strength.

Already, you can see movement by Eby to respond to Trump’s demands.

“There are improvements we can make on our border,” offered Eby on Tuesday.

“We've called repeatedly for, for example, port police to ensure what comes into British Columbia is not contraband, is not illicit drugs or precursor chemicals. These are things that we can do to make life better here in British Columbia, as well as respond to concerns that have been raised south of the border.”

It was mostly the BC Conservatives, though, who have been talking about port security the last few months.

“Eby’s incompetent BC NDP has turned a blind eye to the booming drug trade at B.C. ports, allowing dangerous criminals to operate with impunity,” B.C. Conservative Leader John Rustad said in August.

The B.C. Conservative election platform promised to work with the federal government to “reinstate full and reliable funding for the RCMP-led Waterfront Joint Forces Operations, and expand the number of officers on the team.”

The B.C. NDP platform was entirely silent on the issue.

Rustad ratcheted that up Tuesday, calling on Eby to recall the legislature and pass legislation to fund port policing in the absence of federal dollars. Eby, though, has pushed off any legislative sitting until February.

And finally, it’s hard to claim a position of strength in negotiations when you don’t even know if the other side is serious. Could Trump be bluffing? Does he simply want to see Canadians increase border policing, and then back away from his threats? Or is 25 per cent a number he’s settled on, and he’ll charge forward no matter the economic implications?

Nobody has the foggiest clue in B.C. or Ottawa. And that ignorance is hardly a strength.

“Americans are dependent on what we produce here in Canada,” said Eby. “We are one of the top exporters to the United States, and certainly they're our No. 1 customer as well. We have more in common with Americans than what separates us, and focusing on that and how we can work together to strengthen and support working families across North America is critically important.”

Maybe. But it feels like the B.C. government’s position is less a position of strength than it is plain old wishful thinking.

Rob Shaw has spent more than 16 years covering B.C. politics and now reports for CHEK News and writes for Glacier Media. He is co-author of the national bestselling book A Matter of Confidence and host of the weekly podcast Political Capital.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

The rotten core of Canada’s food industry trust crisis

Losing trust in food industry

Photo: Pixabay

The Canadian Centre for Food Integrity recently released its report on consumer trust in the food industry.

Since 2016, trust levels had plateaued at a respectable level, but the situation has taken a dramatic turn. According to their latest survey, an unprecedented number of Canadians now believe the food industry is heading in the wrong direction. At the same time, trust in the industry has plummeted to its lowest level in eight years. Nearly one-third of Canadians think the industry is failing to focus on the right issues. While this is a broad critique, it raises valid and pressing questions.

Farmers, for instance, continue to enjoy considerable goodwill from consumers. However, this goodwill is often directed more toward farmers as individuals than toward their practices. Criticisms related to pesticide and herbicide use, on-farm milk dumping, feeding cows palm oil to increase butterfat content, ethical animal treatment and environmental concerns remain persistent. Farmers are often perceived as victims of a system dominated by multinational corporations that dictate products and rules. Yet as they move closer to consumers within the food supply chain, skepticism and doubt become apparent.

Food processors also face constant scrutiny, particularly over “shrinkflation” and so-called ultra-processed foods. Even though these companies innovate and deliver high-quality products, these efforts often fail to quell public dissatisfaction. Allegations of price fixing, such as in the bread industry and more recently targeting McCain Foods and Cavendish Farms over frozen French fries, are further eroding trust in this segment of the industry. Such accusations only reinforce the perception that some companies prioritize profit over fairness and transparency, deepening consumer skepticism.

However, it is food retailers who sit squarely at the top of the trust deficit. Whether independent or part of major banners, retailers are frequently accused of abusive practices and unjustified price hikes. According to a trust index developed by our Agri-Food Analytics Lab, nearly 80 per cent of consumers believe retailers’ efforts to address concerns are insufficient. Even when accusations lack solid evidence, resentment against retailers persists.

Grocers, in particular, need to step up. Loblaw recently acknowledged its willingness to eliminate property controls, a practice that has long suppressed competition by allowing major grocers to restrict rival stores from operating close to their own locations. These property control agreements, which often appear in commercial leases, limit consumer choice and keep prices high by stifling competition. Manitoba is poised to regulate property controls in food retail, likely becoming the first province to do so. Other provinces should follow suit, as greater competition would benefit both consumers and smaller retailers.

True capitalism thrives not by controlling competition but by driving innovation, creating value and earning trust through excellence in meeting market needs.

But here is the broader issue. Consumers tend to direct their criticism at what they see and interact with most — stores — rather than farms or barns, which feel distant and unfamiliar. Against this backdrop, a key question emerges: what can the agri-food sector do to regain Canadians’ trust?

The underlying issue is a mutual lack of understanding. For the industry to be better understood, it must first make a genuine effort to better understand consumers, particularly younger generations. Millennials and Gen Z now make up 19.8 million people in Canada — more than 50 per cent of the population. However, an equally significant challenge lies within the food sector itself. Observing conferences and industry events, it’s evident there is often a reluctance to address sensitive topics. Speakers frequently adopt overly agreeable tones or are constrained by sponsors who shy away from discussions on critical issues like supply management or carbon markets.

This culture of avoidance must end. If the industry is serious about rebuilding trust, it must break these taboos and embrace bold, forward-thinking conversations. Conference organizers and speakers must stop tiptoeing around difficult topics, as this only stifles innovation and leadership.

The agri-food sector must take a hard look in the mirror and critically assess its practices. Regaining consumer trust is not only possible but essential for the industry’s future. True transparency and a willingness to engage openly on challenging issues will be key to restoring confidence and ensuring the long-term success of Canada’s food industry.

Sylvain Charlebois is a professor and senior director of the Agri-Food Analytics Lab at Dalhousie University and co-host of The Food Professor podcast.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.