THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, December 3, 2024
The Standing Senate Committee on National Finance met with videoconference this day at 7:06 p.m. [ET] to study Bill C-78, An Act respecting temporary cost of living relief (affordability).
Senator Claude Carignan (Chair) in the chair.
[Translation]
The Chair: Good evening, honourable senators. Before we begin, I would like to ask all senators and other in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents. Please make sure to keep your earpiece away from all microphones at all times. When you are not using your earpiece, place it face down, on the sticker on the table for this purpose. Thank you all for your cooperation.
Welcome to all of the senators as well as the viewers across the country who are watching us on sencanada.ca. My name is Claude Carignan. I am a senator from Quebec and the chair of the Standing Senate Committee on National Finance. I will now ask my fellow senators to introduce themselves, starting with the senator to my left.
Senator Forest: Good evening and welcome. I am Éric Forest from the Gulf region, in Quebec.
Senator Gignac: Good evening. I am Clément Gignac from Quebec.
Senator Gold: I am Marc Gold from Quebec.
Senator Loffreda: Good evening. I am Tony Loffreda from Quebec.
Senator Moreau: Good evening. I am Pierre Moreau from Quebec.
Senator Moncion: Good evening. I am Lucie Moncion from Ontario.
Senator Woo: I am Yuen Pau Woo from British Columbia.
[English]
Senator Pate: Welcome. Kim Pate, I live here in the unceded, unsurrendered and unreturned territory of the Algonquin Anishinaabeg.
Senator MacAdam: Welcome. Jane MacAdam from Prince Edward Island.
Senator Ross: Good evening. Krista Ross, New Brunswick.
Senator Smith: Larry Smith from Montreal, Quebec.
[Translation]
The Chair: Thank you very much. This evening, we are beginning our study of Bill C-78, An Act respecting temporary cost of living relief (affordability), which was referred to the committee on December 3, 2024 by the Senate of Canada.
For our first panel, we are pleased to welcome Jessica Brandon-Jepp, Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce; Karl Littler, Senior Vice-President, Public Affairs, Retail Council of Canada; and Maximilien Roy, Vice-President, Federal and Quebec, Restaurants Canada.
We will now hear opening remarks, starting with Ms. Brandon-Jepp, followed by Mr. Littler and, last but not least, Mr. Roy. The floor is yours, Ms. Brandon-Jepp.
[English]
Jessica Brandon-Jepp, Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce: Thank you, Mr. Chair and honourable members. It is a pleasure to appear before you on behalf of 400 chambers of commerce and boards of trade, and more than 200,000 businesses of all sizes, from all sectors of the economy and from every part of the country.
The Canadian Chamber of Commerce recognizes that Canadians are not feeling optimistic about our economy and the affordability of the goods and services they need most. Although this GST pause was announced quickly without consultation, the affordability crisis did not happen overnight, and the fix won’t either. The root causes of Canada’s affordability challenges cannot be fixed with impulsive half measures or temporary relief being implemented with less than a month’s notice.
While the announcement of a “GST holiday” from December 14 through February 15 is problematic for several reasons, it is also representative of a concerning approach to tax policy writ large.
The tax system is the foundation of our society. Of late, the government has been using tax policy as a means to implement their political agenda, with seeming disregard for the long-term horizon and certainty required for businesses and Canadians to make adjustments to their affairs. Canadians and businesses are still reeling from trying to respond to the increase in the capital gains inclusion rate and a new digital services tax, which will increase costs for businesses and consumers alike and potentially result in trade retaliation from our largest trading partner.
While CRA has issued guidance quickly on the GST holiday, the implementation of this pause remains burdensome. Businesses are forced to scramble to adjust to these changes with less than a month’s notice, only to have to revert back two months later. CRA will be forced to divert resources away from providing guidance on other tax changes, such as the proposed increase to the capital gains inclusion rate.
Instead of supporting businesses across the economy, the GST pause picks winners and losers, with a highly specific and seemingly random basket of products. While there is no doubt that some businesses will experience a temporary benefit from this measure, others will suffer greatly from the challenges involved in updating their point-of-sale systems to address the complex eligibility criteria for products. Similarly, while some consumers will see a small and temporary tax relief, others will receive little benefit due to their family composition or spending habits.
Despite many businesses not seeing benefit from the GST pause, the challenges are rippling through Canada’s supply chains. We have heard from manufacturers concerned about the creation of an artificial and unusual spike in demand for things Canadians have come to rely on, such as diapers, potentially leading to shortages. The GST pause doesn’t help if Canadians can’t find and purchase the goods that they have come to rely on.
The minister has remarked that Canadians should feel positively about our economy because inflation is back down to 2%. Although inflation is beginning to settle, Canadians and businesses are still dealing with the cumulative impacts of the past few years of rising inflation. It is important to note that inflation has not reversed. It is simply continuing to grow, albeit at a slower pace. Canadians remain significantly poorer than before. All of this comes at a precarious time, with a falling Canadian dollar and tensions with our largest trading partner at the fore.
While the Canada’s economy grew 1% on an annualized basis in the third quarter, this was still less than the Bank of Canada’s expectations. Canada’s economy continues to underperform our peers’ and potential, with real GDP per capita falling for the sixth consecutive quarter.
Complex economic indicators cannot change what Canadians are experiencing at home — an inability to make ends meet. While businesses certainly have a role to play in ensuring affordability for Canadians, they cannot address the root causes of the challenges Canadians are facing alone. What we’re missing to address our long-term economic challenges is a clear plan to revive our economy for all Canadians, one that empowers new businesses to launch, helps existing ones grow and create jobs, ensures major projects get built and keeps supply chains running smoothly without constant disruptions and rising costs. It is time to move away from tax-and-spend policies and red tape that drive up the cost of goods and services to move toward an economy that creates true opportunities for all Canadians.
The Canadian Chamber of Commerce’s recent pre-budget submission outlines concrete policy actions the government can take to turn a functioning economy from a vibe into a reality.
I would be pleased to take your questions. Thank you.
The Chair: Thank you. Mr. Littler, the floor is yours.
Karl Littler, Senior Vice-President, Public Affairs, Retail Council of Canada: Thank you, Mr. Chair. I think I may fairly say that this is the shortest notice on which we have been asked to appear before a parliamentary committee, so hopefully my opening remarks are cogent.
Retailers appreciate the opportunity today to present our rather unique perspective on the upcoming GST-HST holiday. Having read some recent commentary from my fellow witnesses and heard the opening statement from the Chamber of Commerce, I suspect that there will be some divergence of opinion.
Let me begin by saying that broadly speaking, we support this policy initiative for a GST holiday and see some real and significant benefits to consumers and retailers alike. There are some challenges, of course, and they shouldn’t be understated, both in the speed and effort required to gear up for these changes and also on a couple of specific design elements that I will come back to.
Those issues do not detract from the fact that the “GST holiday” will save consumers in the order of $1.6 billion. We are under no illusion that we are the primary beneficiaries here. This is designed and delivered as a consumer measure, but we are major ancillary beneficiaries.
Those who sell newly zero-rated goods will have a customer base that finds all-in pricing on those goods more affordable. For some sectors such as restaurants, convenience stores and children’s clothing stores stand out. All or a very large part of their stock will be newly zero-rated. Others will see a benefit across a lesser but still substantial portion of their offerings.
But even those who don’t sell the affected goods could see a benefit as these measures reduce pressure on consumers’ wallets, added to the direct payments of $250 to individuals in parallel to this policy measure, together freeing up funds for all manner of purchases. That’s the demand-side benefit.
But there is another benefit to retailers, in cash terms, and I have yet to see any coverage of it in media or in commentary from policy-makers. Because these newly included goods are zero-rated, that means that retailers themselves will have a larger value of input tax credits. Those, in turn, reduce GST otherwise payable to government. That benefit is calculable and real to each retailer.
There are challenges with some design aspects of the policy, which the government has worked hard to resolve, on definitions relating to children’s clothes for one, and also, and especially, on the delivery requirement within the two-month window.
As originally framed, the policy required the delivery of goods to be completed by February 15. At RCC, we stressed to government that this requirement, if enforced rigidly, would have led to serious disparities between all-in pricing in e‑commerce and in-store sales toward the end of the tax holiday to regional, remote and Northern disparities, and all manner of headaches with shipping methods chosen, whether selected by the merchant or by consumers themselves, each with an inevitable count-back of days ahead of the February 15 deadline for tax-free eligibility. In consequence of our discussions with Finance, CRA guidance now follows our suggestion to treat delivery as handover to a shipping service, courier or post. So in essence, an item will be considered to have been delivered as soon as it is shipped.
There is still work to be done with regard to delivery issues on the final day or two and on proprietary delivery methods, but the system is much improved from the original announcement, so credit where credit is due.
While I suspect that I may be the only cheerleader for the policy on this panel and perhaps the next, I would be happy to drill deeper into any of the points that have been raised.
Thank you.
The Chair: Thank you, Mr. Littler.
[Translation]
We will now hear from Mr. Roy.
Maximilien Roy, Vice-President, Federal and Quebec, Restaurants Canada: Honourable senators, I am pleased to appear before you this evening as part of your study on Bill C-78.
[English]
My name is Maximilien Roy, and I serve as vice president, Federal and Quebec, for Restaurants Canada, the voice of food service operators across the country.
Our mission is to champion the restaurant industry by advocating for policies that foster success, create connections and provide support to our members. Our vision is to see a vibrant and thriving restaurant and food service sector in every community across Canada.
[Translation]
I would like to start by talking a bit about the important role our industry plays.
[English]
With over 100,000 locations across the country, the restaurant industry contributes $114 billion annually to the Canadian economy and $26 billion in taxes, and we employ nearly 1.2 million people. That represents about 6% of the national workforce. This is more than forestry, real estate, fishing, agriculture, utilities and oil and gas extraction all combined. Additionally, for every million dollars of output, our industry creates 17.6 jobs, compared to the average of 7.4 jobs in other sectors. Every day, our members proudly serve 23 million Canadians, making us an essential part of everyday life in Canada.
[Translation]
The past few years, however, have been particularly challenging for our sector.
[English]
Bankruptcies in our industry increased by 45% in the first eight months of 2024 compared to the same period in 2023. Additionally, 53% of restaurants are either operating at a loss or barely breaking even, highlighting the immense challenges our operators face. Profit margins are typically between 3% and 5%, which are small margins. On the other hand, in the past two years, total food cost increased by 25%, labour costs by 18%, insurance by 24% and utilities by 20%.
When it comes to affordability, restaurant operators are right there struggling alongside Canadians.
[Translation]
It is extremely important to consider the timing of the GST relief. Many families are looking forward to spending the holidays their loved ones. At the same time, they are worried about their finances. Thanks to the GST holiday, they will be able to have a bit more enjoyment than they thought.
[English]
The month of January and the first weeks of February are usually the most difficult for restaurants. Consumers, being conscious of their spending over the holidays — and sometimes with New Year’s resolutions — just don’t go out eat or order at restaurants as much as during other periods over the year. For our industry, the timing of the GST/HST holiday could not be better.
[Translation]
Bill C-78 will be transformative in a number of ways.
[English]
This holiday provides timely and meaningful relief, encouraging Canadians to dine out more frequently and support restaurants in their communities and our entire workforce. It is a win-win-win solution. For the restaurateurs, this is a temporary tax relief that could mean the difference between keeping their doors open or shutting down.
For workers, the 1.2 million Canadians employed in the food service industry, it offers greater job security and renewed hope, especially as we approach the holiday season. It also means that some part-time workers, they may get more hours as demand increases, allowing them to increase their revenues. For Canadians, it’s an opportunity to reconnect with loved ones over a meal while easing the financial burden many are feeling right now.
[Translation]
According to our chief economist, this tax holiday could generate close to $1.5 billion in additional sales for the industry during the relief period. That illustrates the positive impact the measure can have, not just for restaurants, but also for the entire economy.
[English]
In short, Bill C-78 is more than a temporary measure; it’s a lifeline for a struggling industry and a catalyst for economic recovery. It’s good for businesses, good for workers and good for Canadians. Thank you very much.
The Chair: Thank you, Mr. Roy. We will now go to questions. We’ll try to stay within a four-minute maximum for both the question and answer. We’ll have to be concise. We have an issue with time because we have another panel at eight o’clock.
[Translation]
Senator Forest: Can you describe what it will cost retailers in time, money and labour to reprogram their point-of-sale systems?
[English]
Mr. Littler: Yes, it is a substantial issue, and obviously, if people don’t have in-house resources, it is even more challenging because there is a lot of competition for that consulting side. It is not to be sneezed at. I think that has been, frankly, the primary source of objection, along with some questions of definition within the defined categories of goods that people have had. I don’t want to minimize it in any way.
I’m fairly familiar with tax policy. It is generally not given a whole lot of lead time for a whole variety of reasons, not least it can, if it is significant enough, move markets. It is not unusual to have significant change in short order on a tax policy basis, but largely not with respect to the excise tax. This is a new one. I’m trying to remember if there was anything with Y2K. I don’t think there was. I think it is the first time with respect to the GST/HST, but it is not unusual for people to, of course, respond to tax measures in the immediate wake of a budget.
The one other thing I would say is that I have talked to a lot of colleagues with other trade associations, cognate trade associations to our own, and they all have concerns about this because they have been hearing from members. I did, somewhat cheekily, with my one colleague suggest that if they were that concerned, maybe we could lobby to exclude their goods and the answer I was given was, “Well, no, I mean, we do want it. It is just a hassle.” I think, probably in weighting it, that’s how I would regard it — that people do not welcome the administrative burden, but may welcome the substantive outcome.
[Translation]
Senator Forest: Thank you. My second question is for Mr. Roy.
We know times are tough for the restaurant industry. With the labour and supply challenges it faces, Quebec’s finance minister actually said he was worried that restaurant owners would hold on to the savings from the tax holiday and not pass the reduction on to consumers, meaning that consumers wouldn’t see a difference at the end of the day.
Do you think that’s likely?
Mr. Roy: I think it’s important to clarify some things.
Could they hold back a certain portion? Possibly. However, if we look at what is happening in the industry right now, in terms of menu price inflation versus rising margins, what we’ve seen in recent years is really decreasing margins. Restaurant owners are well aware that, because of inflation, consumers can’t afford to spend what they used to. What we’ve seen is a real gap between those two numbers.
I don’t want to answer in absolutes in either case. That said, what we are seeing in the vast majority of cases is a need to attract as many customers to restaurants as possible. The goal for us is to have as many people as possible frequenting our restaurants, not to take advantage of the tax change.
[English]
Senator Smith: Mr. Littler, how significant are the anticipated compliance costs for retailers, and does RCC believe these outweigh the potential benefits of increased sales during the holiday period?
Mr. Littler: I don’t believe that we are looking at something that would exceed the benefit of the sales increase. Certainly, I have not heard that from members, and ultimately, our litmus test is whether members are sufficiently concerned to suggest that it is not worth the candle in a sense. We have not heard that, but it will be significant. There is reprogramming.
There are a lot of considerations that haven’t been spoken to directly, some of which the government has moved to fix. For example, if they were taking a charge for a product prior to the period, but they don’t charge the card until shipment, they then need to have a system that is in place that will then reverse that charge because, of course, the purchase has ultimately fallen within the zero-rated period.
There are complexities at the beginning and at the end of the process. I am not suggesting that it is minor, but nobody has given me to understand, from any of our members, that they see it as actually exceeding the benefit.
Senator Smith: How does RCC view the overall impact of Bill C-78 on the retail sector, particularly regarding competition between large and small retailers?
Mr. Littler: We have members at all levels. Obviously, to the extent that you are operating multiple jurisdictions, there may be additional tweaks. Although I would note that to this point, there have been no provinces following suit outside of the harmonized provinces, so the complexities are not necessarily multiplied.
The challenge for the smaller retailers is that they don’t have in-house IT. They tend to rely on consultants for accounting systems and so forth. That would be somewhat of a scramble. I don’t know that it would fundamentally change the competitiveness balance between large and small, but certainly the challenges on compliance might be more difficult for some of the smaller members who are having to rely on outside parties to ensure that they are fully compliant.
Senator Smith: Ms. Brandon-Jepp, you have talked about the impacts of high inflation, which is still being felt across the country. The Bank of Canada has been very aggressive in bringing down inflation, and is just now slowly working to influence interest rates going down. Is there concern that the government, with these tax measures as well as the potential for $250 rebates, could erase some of the work that has been accomplished by the Bank of Canada in cooling down demand and lowering inflation? Do you think this is a valid concern in respect of Bill C-78?
Ms. Brandon-Jepp: Thank you for the question. Yes, I do think it is a valid concern. We have concerns that if this holiday on the GST works as intended and does have some positive effect, we could see challenges with inflation. I think that the potential benefits of this could be borne by Canadians in terms of interest rates remaining higher than they might have otherwise. I do think your concerns are founded and valid.
Senator Smith: Have you had lots of feedback from your clients on this particular issue in terms of framing it?
Ms. Brandon-Jepp: Certainly, our members are very concerned about broader economic conditions. It is worth noting that the Canadian Chamber of Commerce, unlike a lot of our other colleagues here today, look broadly across the entire economy and represent businesses of all shapes, sizes and forms. So, some of our members may stand to benefit, but many have challenges with this legislation, and what we’re hearing and seeing is that there is a concern about the long-term economic health of Canada and our ability to help businesses grow our economy and drive down costs for Canadians.
The Chair: Thank you.
Senator Dalphond: Welcome to our panellists. I will go directly to Mr. Littler, who is the Senior Vice-President of the Retail Council of Canada, or RCC. I saw on your website that you’re described as being the strongest retail voice in Canada and you say that your membership is the largest retail trade association in Canada. How many members do you have?
Mr. Littler: We have 45,000 storefronts, all told, on the retail side, but in addition, we represent some quick-service restaurants, often in tandem with Restaurants Canada. So, that would add another 15,000.
Senator Dalphond: If I understand you properly, 55,000 of your members are store operators —
Mr. Littler: Storefronts. The number of members depends on how you measure it.
Senator Dalphond: One might have many stores, is that what you mean?
Mr. Littler: In terms of stores, we’re in excess of 55,000.
Senator Dalphond: Thank you very much.
[Translation]
Mr. Roy, you said you have 100,000 members across the country. Is that right?
Mr. Roy: Yes, 100,000 restaurants across the country. We have 35,000 members. The numbers don’t match because some of our members own large chains that can have hundreds of locations. We cover about half of all restaurants in the country.
[English]
Senator Dalphond: Ms. Brandon-Jepp, I am trying to understand. Are these people members of the Canadian Chamber of Commerce through one of the chambers of commerce?
Ms. Brandon-Jepp: Yes, the chamber network feeds up into the Canadian Chamber of Commerce and informs our policy position, so we speak on behalf of 400 chambers and boards of trade from all across Canada.
Senator Dalphond: I understand, but it seems that there are 100,000 members who are not in agreement with your position.
Ms. Brandon-Jepp: Interesting.
Senator Dalphond: That’s what I think; it’s interesting. So, I’m just trying to understand.
[Translation]
Mr. Roy, I listened to you speak, and you said that the measure would generate up to $1.5 billion in additional sales during the two months. That’s according to your estimates. I assume you represent a lot of people in the fast food sector. Is that right?
Mr. Roy: We represent a range of restaurant owners, but yes, we have members in the fast food sector, just as we have independent restaurant owners.
Senator Dalphond: Let’s say I go to a St-Hubert, McDonald’s or Swiss Chalet and I buy a $20 meal for lunch or dinner, tax included. I will save at most $3 in provinces with the HST and a lot less, $1, in provinces without the HST, where it’s just the GST. I could buy more, and that would mean that the $1 or $3 will generate $1.5 billion when all is said and done. Is that right?
Mr. Roy: Yes, that’s the estimate for the whole industry across the country. It’s $1.5 billion. For each restaurant, it amounts to about 5% in additional sales. That’s pretty significant for our members.
Senator Dalphond: For you, then, it will give the restaurant industry a boost. Is that right?
Mr. Roy: Absolutely, it is a well-deserved and long-awaited breath of fresh air.
Senator Dalphond: Thank you.
Senator Moreau: Mr. Roy, the situation you described amounted to the perfect storm for restaurants. There was the pandemic, which forced restaurants to close completely twice. Restaurants are struggling to find more workers. Their costs have gone up. Since the pandemic started in 2019, you’ve seen the profit margin of restaurants shrink over the years. That’s why I have a bit of trouble believing that your members won’t take advantage of the situation. I’m not challenging the answer you gave, but I would like you to tell us a bit more. When you answered Senator Forest’s question, you were pretty confident when you said that restaurant owners wouldn’t use the tax reduction as an opportunity to increase their prices since customers wouldn’t see the difference. I would almost call that a natural temptation.
Mr. Roy: You raise a good point. What we’ve seen a lot of is a persistent mindset among customers where they won’t spend more than $20 or $50 for a meal when they go out to eat. That has become a mental barrier. Above the $50 mark, we see fewer people saying that they won’t go out or choosing cheaper options so their bill won’t be as high.
Nevertheless, there is a real barrier in people’s minds, and when it’s crossed, they don’t go ahead, they don’t spend. On the contrary, they go back home. Our members would be wrong to think that they would make more by raising their prices. What we are hearing from our members and what our chief economist is telling us is that having more people frequenting restaurants would be better than raising menu prices and having a higher profit margin.
Senator Moreau: By your estimate, the industry’s revenues will go up by $1.5 billion. Have you estimated how much customer numbers will go up? I’m talking about people who didn’t go out to restaurants but who would be interested in putting some extra money in restaurant owners’ pockets because of the tax measure.
Mr. Roy: I don’t have those figures, but I can get back to you, if you like.
Senator Moreau: Does your $1.5-billion estimate represent new customer sales, or does it correspond to customers’ going out to eat more times?
Mr. Roy: It’s a combination of both. We’ve seen a lot that, in households where the salary is $50,000 or less, there was a drop of up to 21% when inflation has been accelerated over the past year. The number of people who used to go to restaurants dropped. Some decided to stop eating out.
Senator Moreau: Senator Moncion and I were talking about this afternoon, and I’d like to hear what you have to say about it. If I go to a fast food restaurant, there may be an incentive, or the measure is aimed at a disadvantaged clientele, that is, Canadians who need help. Do you think that this measure is targeting the same clientele in independent restaurants? For example, if I go to Le Toqué in Montreal, it’s obvious that I’ll benefit more from a reduction than someone who needs a tax break much more than the typical clientele of Le Toqué. I’d like to hear your thoughts on the fairness or equity of this measure.
Mr. Roy: Quickly, the GST always has a greater impact on people with lower incomes, so if everything comes together, it should be mainly the smaller restaurants that will benefit in terms of percentage, obviously.
[English]
Senator Pate: My question is for you, Ms. Brandon-Jepp. You mentioned concerns for your clients and your membership. I’m curious as to what kind of analysis you’ve done around how the pricing will impact consumers, whether there’s a potential for this to actually result in higher prices as well, and what kind of analysis you’ve done in those sorts of areas.
Ms. Brandon-Jepp: Certainly, this is a new policy, and businesses have been working to adapt to that since they were given notice that this would be implemented in less than a month’s time. I think businesses are trying to figure out the real impacts of this, and certainly, the chamber is involved in that as well.
For us, in terms of prices, there are definitely significant challenges that we’ve outlined in a number of submissions, including our pre-budget submission, and there are many things that are baked into what is driving affordability challenges for Canadians. It’s very difficult. We’ve had things like a postal strike, for example, that are affecting the ability of a lot of businesses to get products and services out to consumers. They have to find alternative ways to ship products. That’s just one example.
It is important to note that this might help consumers in a temporary manner, but after February 15, Canadians are still going to be experiencing the same challenges they have been all of this time, without a long-term vision for growing out and bettering our economy.
Senator Pate: If you had a recommendation to the government, what would you recommend they do?
Ms. Brandon-Jepp: Regarding a recommendation, take a look at our pre-budget submission; there are lots of actionable items in terms of making our economy work for Canadians in the long term. The Canadian Chamber of Commerce is very focused on our trading relationship with our largest and most important trading partner, the United States. This has the potential to create all sorts of challenges for businesses and Canadians, writ large.
What we’re focused on right now is our economic policy over the long term and ensuring that after February 15, Canadians have an economy that’s working for them.
Senator Pate: Thank you.
Senator Woo: My question is mostly for Mr. Littler and Mr. Roy.
How much of the benefit from this bill do you think might be reduced by consumers making decisions to delay purchases or advance purchases so they can take advantage of the zero-rated tax for purchases that they would have made anyway? Mr. Littler may go first.
Mr. Littler: It is an issue for our folks, for sure, and we are having instances of people returning product with the intention of buying it again. We do anticipate that a big spike in February will probably lead to slower sales in March, and we can see people making some deferral decisions now.
But, net, there is a greater affordability. Therefore, I don’t think we should lose sight of that. When people buy in the window, they will find more affordable products than they otherwise would, so on a net basis, they would come out ahead.
More generally in regard to this policy — because we’re talking about a sweeping policy that might affect our global trading relations or a more comprehensive approach to the tax system or to affordability — we have to put this thing in perspective. It is $1.6 billion in estimated tax savings over a two‑month period in the context of a $2-trillion-plus economy. It’s not being held up as a panacea by the government. We don’t see it as a panacea, either; we see it as a net positive in its own light. It is a relatively discreet policy to push affordability in and around the holiday period. It’s in that context that we view it.
Mr. Roy: We don’t have the same sort of issue as some people in retail —
Senator Woo: They can’t get a refund.
Mr. Roy: No, we don’t have that issue.
The timing is very good for us and our industry, because January is always a very slow month for our industry. Until Valentine’s Day, for us, is just a good segue into it. For us, the timing is pretty good.
I don’t see a lot of people not going to restaurants now. There might be some, but it won’t be that significant.
Senator Woo: Thank you.
Senator Loffreda: Thank you for being here. Undoubtedly, Canadians do need a break, so the bill will be welcomed by many, but there are concerns. At this point, we are borrowing money to stimulate current consumption with future benefits being very difficult to identify.
My question is for the Retail Council and the Chamber of Commerce. Can you elaborate? Do you feel this was the right measure at this point in time for Canadians? Could anything more effective have been done? In Canada, we have a productivity issue. Could something have been done for productivity? Competition is very difficult to increase with stimulus, but I’d like your take on those things.
With respect to Mr. Roy, I think Senator Woo covered the timing issue well, but maybe you can elaborate. Are you not concerned? Spending power for Canadians is limited, and once this temporary relief is taken away, don’t you feel that Canadians will, at this point, hold back from going to restaurants? On price increases, do you feel price increases might take effect, because, historically, when GST was reduced, prices were increased. The past is the best predictor of the future, like we say.
Mr. Littler: I don’t want to reiterate too much, but I do think it’s important to place things in the same context that this is not a panacea; it’s a temporary stimulus measure. It’s not massive.
However, there has been an affordability challenge, so this is clearly targeted at consumers managing some affordability issues. In some respects, particularly families with children, you can certainly see it having an effect.
There are a multitude of things I would rather see. I would rather see tariff relief. We’re under a very significant tariff burden, which is interesting in the context of the recent emanations from the United States, but we pay the bulk of almost $5 billion in tariffs that accrue to the federal government. There are vestigial elements of the national protectionist policy in the past. We would like to see that removed. That is something that would be a permanent benefit. That would be one area where we would like to see some action from the federal government.
Again, however, we do see this as a temporary stimulus measure, which, within the context of the federal budget is not, obviously, of colossal cost as we are spending at a point in time where consumers have been feeling affordability challenges. To us, as long as you treat it on the scale that it is and the scale it’s intended to effect, we think it’s a positive measure and should be supported.
Senator Loffreda: Thank you.
Ms. Brandon-Jepp: Thank you for the question.
I would say here that we’re trying to slay a dragon with a butter knife. This is a massive problem that Canada has with our long-term economic growth, health and productivity, as you’ve rightly pointed out, senator. For example, we still don’t have a Fall Economic Statement that Canadians can read through to ascertain where our country’s finances are at. I understand that is forthcoming; hopefully, it will be before the holidays.
But there have been a lot of questions about the costing of this proposal. The Canadian Chamber of Commerce has been unequivocal: Canadians are struggling. We identify with that, but a temporary measure is not going to fix the heart of this problem, which is that our country has not put an emphasis on policies that promote economic growth, raise our tax revenue for the government organically rather than punitively, and ensure we can get down to work and do business here in creating jobs and opportunities for Canadians.
Really, we’re hoping to see a long-term solution for Canadians instead of a one-time temporary measure.
Senator MacAdam: This question is for Mr. Littler.
I read your press release regarding the GST/HST tax holiday improvements for retailers that you secured after multiple discussions with the Department of Finance Canada. Did you initiate those discussions, and could you elaborate on those improvements that you made?
Mr. Littler: Sure. We had a number of questions that came in from members as well as some other issues that we intuited. The largest one was on the delivery side. The initial statement on November 21 indicated that both payment and delivery would have to take place within the window, and some elements of delivery are entirely beyond the control of retailers, obviously. You can imagine, with the Canada Post strike, how tenuous that level of control would be now.
It led to potential outcomes where you would have a different tax structure for somebody buying something in Tuktoyaktuk as opposed to in an urban area. You would have to back up your sale in order to anticipate that you would have delivery in time. There were all kinds of problems with that.
The government was very responsive in that regard. We had an issue with respect to children’s clothing, particularly of sporting or recreational origin, because there was a concern that things that could be worn as street wear, that would be worn on a regular basis by children, might be disqualified because they had a sporting or recreational element to them, and the government has taken a pretty commonsense approach in that regard.
So there are still some things to sort out, because there is a potential pile-up at the back end. You can anticipate that stuff sold at the very end will not be in a courier or delivery stream instantaneously, so we certainly need to work that piece out. There are a few other wrinkles, but for the most part, discussions are proceeding in a way that is narrowing in on sort of common sense solutions.
I think that’s probably the main issues that we face right now. We are having some definitional discussions around very specific product categories — what kind of protein bar, and all of those sorts of things — but for the most part it’s been productive discussion.
Senator MacAdam: You mentioned that there are going to be many further questions that may arise and you stand ready to obtain clarification on those points and to advocate for change or flexibility from CRA. How confident are you that CRA is going to be accessible and available to answer those questions on a timely basis?
Mr. Littler: We’ve asked to have a direct contact at CRA. Most of our work has been in discussions with ministers’ offices at this stage, and obviously the policy driver has been finance — or traditionally the policy driver has been finance — and CRA plays more of an interpretative role, although they’ve stepped up early this time. I think that we will have ongoing questions.
I’ve had questions on whether a virtual reality set a gaming console. And that’s not the sort of thing that I can just extemporaneously answer. And I’m not sure that the minister’s office can answer that. So we are anticipating that we will have questions throughout this, and particularly in the run-in to its initiation on the December 14, and we do expect CRA to be fairly responsive, based on to date.
Senator MacAdam: One quick question, if I could? You mentioned the GST input credits, which I understand. I’m wondering, have there been any estimates calculated on that, or do you have any dollar value that you attach to that?
Mr. Littler: It all comes down to cost of goods because, of course, input tax credits are not on the final sale price, they’re on all of the elements that go into the sale, including cost of goods, but obviously other ancillary costs. I would anticipate that it would be in the order, across the broad massive retailers, of perhaps $700 million to $800 million, but that’s really speculative. And, of course, it will fall differently depending on the percentage of newly zero-rated goods that each retailer would have in their product mix.
Senator Ross: I have a quick question for each of you, and then I have a question for Mr. Roy. So my quick question is, did you consult your members for data, actual data-driven opinions, or are these things that your economist came up with? And if you did consult your members, did you consult both the small and large members to get a sense of the impacts that they would have from Bill C-78?
Mr. Littler: Obviously, we haven’t had the opportunity to speak to all of our members in the intervening period. We have put out member notices that have solicited input, and we have had input from small, medium and large members through that period. I don’t think we have a lot of data that’s incoming from members. This is essentially more in the nature of legal drafting and compliance issues rather than a data-driven exercise for us, to this point in time.
Ms. Brandon-Jepp: We’ve heard from a number of chambers, including chambers that represent more local geographic area, that have concerns. They’re positively optimistic that this may help to drive some sales for certain businesses in certain locations, but I think, writ large, the key message and key take away we’ve been having is that we need a long-term vision to grow our economy.
We’ve also heard from manufacturers, which, as I’ve said in my remarks, are very concerned about artificial spikes in demand for products, and they’re trying to figure out how to mitigate this. There are usual seasonal spikes for things, but this is artificial in a sense and unusual, and so there is concern about that.
And we’ve also heard directly from particular businesses who are concerned about the eligibility criteria. As I mentioned, it sort of excludes certain products and services and, to some, may seem arbitrary or overly specific. One example was LEGO sets; are they marketed to children or adults?
So I think our businesses, instead of spending time determining whether a LEGO set was meant for adults or children, are more interested in trying to create jobs for our economy and give back to their local communities.
Mr. Roy: We’ve had discussions with smaller and bigger members across the country, both with our board but also with our regional vice-presidents across the country. We’ve been reaching out, getting a bit of the feeling that people had. So it’s not data in the sense of statistical data, but in terms of really getting a grasp of how operators are feeling about this, yes.
In terms of the numbers we have on the sales, it is based out of the data we have going back to 1991, when the GST was actually introduced what was the impact, and how can we calculate from there.
Senator Ross: I have a question for you, Mr. Roy. I’ve heard directly from restaurant owners in New Brunswick, and I’d like to share feedback from one who owns multiple locations. And I’m going to read what this person said:
I really don’t think two months of no tax is going to help much. Most restaurant profits nowadays are less than 5%. A 5% increase in sales over two months might be an additional $100,000 in sales, so it’s an extra $8,000 to $10,000 per restaurant, over two months, making a profit of $500. Is it worth it?
That amount of increase isn’t enough to increase employee hours, do much to support suppliers, but might help some of the larger, non-independents, but the independents won’t benefit much.
This person said that in addition to that, because of what is happening with the economy now and the affordability issues, they’re putting on specials and features all the time offering more than 15% off, and not filling their seats.
You also mentioned $1.5 billion, how did you come to that number?
Mr. Roy: These numbers are based on circle data that we have from the introduction of the GST in 1991. We also have a quick-react service and we use data from Statistics Canada to see how it goes, the stickiness in a consumer’s mind when it comes to lowering prices or reduction in taxes. This is where we got the information.
Obviously, there are a bunch of opinions out there, some positive, some less positive. Overall, what we’ve received from our members is that this is a great victory for our industry.
[Translation]
Senator Moncion: My question is for Ms. Brandon-Jepp.
[English]
It’s about a comment that you made, and you were saying pick winners and losers. Who do you see as winners and who do you see as losers?
Ms. Brandon-Jepp: I think the government has been fairly explicit about the variety of products and services that are included, a lot of them sort of seem targeted for specific reasons.
I think any time that a government policy picks out specific products or services, they’re providing an advantage to certain sectors of the economy and certain businesses. I definitely think there are winners and losers for this. As you can see, my colleague here from Restaurants Canada feels that this is going to be helpful for some of his members’ restaurants, but for other industries, it’s not as helpful.
Senator Moncion: Thank you.
[Translation]
Senator Gignac: My question is for Mr. Roy, but it will be the same for Mr. Littler.
I’m assuming that the government is well-intentioned and wants to help reduce the cost of living for Canadians, but I’m trying to understand the impact this may have in the Ottawa area. I’ll be fairly specific. I understand that if Quebecers in the Gatineau region come here to eat at St-Hubert or Pizza Hut, which are accessible restaurants for people in the less affluent class — or whatever, everyone who goes there — they will save 13%.
In Quebec, they will have to pay the provincial sales tax because the tax is not harmonized. If they want to save money, they can go to Pizza Hut or St-Hubert on the Ottawa side. Am I wrong?
Mr. Roy: We raised this point with the Quebec government last Friday and suggested that they do what our neighbours in New Brunswick and Ontario have done, which was to remove the provincial tax so as not to create inequities at this time.
Senator Gignac: We’re not talking about the gas tax here; we’re talking about the goods and services tax, so it’s not easy to apply.
Mr. Roy: Absolutely. It’s something to keep an eye on.
Senator Gignac: For a family of four, orders can easily top $100. Haven’t you heard much from Gatineau-area restaurant owners yet? Obviously, we agree that they risk losing customers who would prefer to cross into Ottawa to easily save $15 or $20 on their bill.
Mr. Roy: Absolutely. I’ve heard from people in the region, and we’ve had discussions with the Quebec government. At this point, they’ve closed the door, but we’re trying to reopen discussions.
Senator Gignac: If a Quebec residents has chicken delivered from a restaurant in Ottawa, it’s like micromanaging.
[English]
I have a similar question. Costco is on both sides of the Ottawa River. That means if people want to save money because they have children and many things, it sounds like it will be better to shop on the Ottawa side rather than the Gatineau side? Am I wrong?
Mr. Littler: It would be hard to argue the contrary of that. It is a 13% savings in-store on the Ottawa side relative to the Gatineau side at 5%, so there would be an advantage. It would depend a little bit on the volume of items. You have to drive, you have to do what have you.
If it is e-commerce, though, it doesn’t make a difference, because, of course, if you order from a distributor outside Quebec and it is delivered into Quebec, it is still delivered at Quebec rates, so there is no issue on the e-commerce side. But physically, if you were to cross over the Ottawa River, yes, all other things being equal, it would be cheaper on the Ottawa side.
Senator Gignac: I understand e-commerce, but if people go and take out on site on the Ottawa side, they will save money.
Mr. Littler: Ottawa has the advantage.
Senator Gignac: You have to go inside in Ottawa and you will save that money; otherwise it is delivered and you have to pay. Okay.
Mr. Littler: Yes, I think that is right.
Senator Gignac: Because I think this is the first time in my life I cover national finance and GST and this kind of thing where have I seen, in a very short period, without provinces including it, and that creates some distortion. Thank you.
[Translation]
The Chair: I’d like to thank the witnesses for being here. It’s really appreciated, especially on very short notice. We appreciate it. You’re obviously professionals, and you’ve done a great job.
[English]
Senator Smith: If I could interject, Maximilien is a Bishop’s University graduate, so we hit it off right from the start. Jessica messed up her knee last night. She took a slapshot and scored a goal, but she tore her knee. If you see both of them walking funny, we should congratulate both of them for testifying. Thank you.
[Translation]
The Chair: We are pleased to welcome from the Canadian Centre for Policy Alternatives, David Macdonald, Senior Economist. From the Canadian Federation of Independent Grocers, we have Gary Sands, Senior Vice President. From Canadian Federation of Independent Business, we have Dan Kelly, President and Chief Executive Officer.
Welcome and thank you for accepting our invitation to appear this evening on such short notice.
We will now hear opening remarks for Mr. Macdonald, followed by Mr. Sands and Mr. Kelly.
Please go ahead, Mr. Macdonald.
[English]
David Macdonald, Senior Economist, Canadian Centre for Policy Alternatives: Thanks to the committee for allowing me to present to you on Bill C-78.
Broadly, if there was $1.6 billion to spend, and plenty more if we include the provincial HST portion, there may be better priorities for the federal government to consider. This change for only a few months is unfocused and unlikely to have a measurable difference for those struggling the most this holiday season.
In January and February, we will see an impact on inflation statistics. We’re likely to see the inflation statistics for food purchased in stores drop from about 2% to 0% over those two months, and the inflation statistics on restaurant food may well decrease further and turn into actually a deflationary situation where the prices are legitimately somewhat lower compared to this time last year.
But after this two-month period is over, these two statistics will go right back to where they started, which is 2.5% inflation on food in stores and 3.5% inflation on food in restaurants.
Clothing and footwear generally had already been seeing deflation. Prices are falling 3% to 4% over the past year, and the removal of GST on children’s versions will likely see prices fall slightly faster in these areas.
We, of course, assume that this $1.6 billion benefit is going to consumers, and that is not necessarily the case. There is no requirement for prices to remain unchanged while the GST holiday goes into effect. If prices effectively dropped 5% with this GST holiday, there is nothing stopping stores from increasing prices 1% or 2% and capturing a portion of that 5% decrease for themselves; or alternatively to not provide the same sales that they might have otherwise provided, particularly in January and February at this time last year. Don’t pay the GST is a common discount approach that cannot be used this year and might be used a lot less, therefore resulting in higher revenue and potentially higher corporate profits.
If we don’t see food prices decrease, but, in fact, we do continue to see them increase over this time period, we will know that a portion of that GST cut has been captured by increased prices and is not going to consumers but instead to the companies providing those goods and services.
Now, there is likely room in the fiscal framework to spend $1.6 billion in 2024 without changing the fiscal outlook. There is likely in the neighbourhood of $5 billion that we could spend and maintain the deficit at roughly $40 billion as projected in the spring budget.
Budget 2024 was particularly pessimistic about growth this year, essentially baking in a full-scale recession. Now, at the end of the year, we know that didn’t happen, and as a result, we’ll likely come in a full point above projected real GDP that will result in higher federal revenues and smaller income transfers on things like Employment Insurance, resulting in roughly an additional $5 billion to spend in 2024. Now, we will have to wait for the Fall Economic Statement to confirm this, if and when it appears. There is almost certainly room for the GST holiday and then some without changing the fiscal framework.
While I’m not necessarily in favour of this measure, I would say the affordability crisis is real, but it is hitting some much harder than others. In some industries, like professional services — think accountants or IT consultants — wages are far above pre-pandemic levels even after adjusting for inflation. However, this is offset in other industries where wages continue to be well behind where they stood in pre-pandemic terms, particularly when we look at real terms.
In a time when unemployment is not at crisis levels, we are seeing an all-time high use of food banks. The rapid increase in housing costs, particularly rents in the last year, has eaten the rest of household budgets. This can certainly lead to food bank use, which are at record highs, but it is also leading to tremendous levels of visible and invisible homelessness in places like encampments, which we are seeing across the country. Rent eats first, as they say. For folks who have lost housing or are in a province without rent controls, having to move rapidly can mean homelessness as rents have risen so much in the past year that it’s too hard to get back in.
This $1.6 billion GST holiday — or likely $5 billion in rough fiscal room in 2024 — could be much more focused and have a real impact on those facing severe food insecurity and homelessness. An effective 5% discount on about half the food and grocery stores is not going to have an impact on food bank use this holiday season, but a focused transfer to those in lowest income — for instance, as determined by a subset of the GST credit recipients — could result in hundreds of dollars this holiday season for those most at risk.
In the longer term, we could create a supplement to the Canada Child Benefit — something that we have long advocated for — that could deliver up to $8,500 per child to the poorest families with children and cut the child poverty rate in half. The cost of this supplement to halve child poverty is actually slightly less than the combined cost of the GST holiday and the now‑delayed $250 cheques to folks with employment earnings.
Small changes attempting to provide everyone with a very small benefit does essentially nothing for those most at risk this holiday season, but spending that same amount of money in a much more focused way towards those in poverty, those using food banks and facing homelessness, can have a much more meaningful impact. Thank you very much, and I look forward to your questions.
The Chair: Thank you, Mr. Macdonald.
Gary Sands, Senior Vice-President, Canadian Federation of Independent Grocers: Yes, thank you. I want to echo what my colleague Karl Littler mentioned about short notice. The only shorter notice I get is from my wife when I’m being told I have to do something. I have no notes. I will just speak with some main points that I want to make.
There are 6,900 independent grocers in Canada, and many are in rural and remote communities. We’re also the largest supplier of food to Indigenous communities in Canada. We are on the front line with consumers. Our members are not in head offices in different areas. They are there interacting with the consumers. There is no doubt that affordability is still a concern for consumers.
Maybe I misunderstood what Mr. Macdonald was saying, but we are still seeing cost increases from our suppliers. Our suppliers are the food manufacturers that supply the goods. We’re not pointing fingers at them either. We know there are a number of factors beyond their control that are driving up costs, but, again, we’re still seeing those cost increases, so this is a measure that we support because we know our customers and consumers will support it.
This wasn’t intended to be a measure to help businesses. We know that. I don’t think we see this as helping our sales for groceries. Food is not a discretionary item. Whether it helps sales or not, I don’t think we’re really going to know the answer to that — I will just speak on behalf of our members — until after. But we’re supporting it because we know it is the right thing to do for consumers and that it will provide some help.
Are there going to be challenges with this? Are there challenges? Absolutely. Very significant challenges. The on-ramp for this is very short and then there is a quick off-ramp. Those challenges are disproportionately shouldered, I would suggest, by smaller- and medium-sized businesses than they would be by larger ones. They don’t have the same in-house resources and supports or the infrastructure that larger businesses — I won’t pick a sector — just larger businesses have.
We have had a number of questions arising from our members. I have to say, I give full credit to Deputy Prime Minister Freeland’s office. We have been reaching out to them, asking questions that our members are seeking clarification on and impressing upon them how quickly we need them, and they have been very responsive. We’re appreciative of that. We still have more questions that need to be answered. That’s very important when we don’t have those resources available, but, again, they have been very helpful, and we appreciate that.
In closing, again, we support this measure. We don’t see it as something that was designed to help business but help consumers, and, again, just from what we have heard from our members, in terms of the contact they have with their customers, this is something we just feel we have to support.
The Chair: Thank you.
Dan Kelly, President and Chief Executive Officer, Canadian Federation of Independent Business: Thank you so much, senators, for the opportunity to join you this evening. On behalf of the Canadian Federation of Independent Business and our 97,000 small- and medium-sized businesses as members, we wanted to share a few perspectives from a recent member survey that we conducted. When this hit — together with the Canada Post strike, another giant issue for a lot of small companies — we did a quick emergency survey of our members on November 26 and 27 and collected, in 24 hours, over 3,500 responses from small companies across the country.
What did we hear? While there are some that believe that there will be some net benefit for businesses in terms of increased sales as a result of the GST/HST holiday, only 4% of small firms actually believed that it would be the case that they would come out ahead as a result of this measure. In fact, the majority of our members opposed the GST holiday, and that included some of the sectors that you might think would be advantaged by having this break on the majority of their products. This included a majority of small restaurant owners, my members, that opposed the GST/HST holiday. Of those businesses in retail hospitality that are expected to implement this, the opposition to this is even greater; 62% of those that do fall into the category of selling these now zero-rated goods oppose this measure.
We collected some other data, and 75% believe that it will be costly and complicated to implement the holiday. The median number that we collected in terms of additional costs was a thousand dollars in reprogramming point-of-sale systems. As well, 65% of businesses said this was not enough time to implement the change; 71% said that the benefits would be largely for big businesses and online giants rather than for small independents; 68% said that it would be difficult to determine which items are temporarily exempt or zero rate; 66% of the retailers said that they believe that customers will delay purchases; and over half, 54%, said that they believe customers will return products to repurchase during the holiday period. In fact, we have heard evidence anecdotally from our members that that second item of returning goods to repurchase is already happening.
I will add, though, that while it is great that you have got a number of business associations in retail, restaurants and food services at this presentation, I’ll add that from what we can tell, virtually no manufacturers, suppliers or distributors are even aware of the fact that this applies to them too. This is not just a holiday at the retail level. The manufacturers and distributors of these products are also not permitted to charge the GST or HST during that two-month window, and as a result, most of these companies that we have spoken to do not know that is supposed to be affecting them in 11 days.
I have a couple of examples. A small convenience store chain has let us know that they have 50 franchisees. They estimate it will take 16 hours per location to implement, 800 hours across the chain, and they estimated the cost at $50,000.
Just to put a bit of colour about this, they actually have to ensure that on Friday night, after they close their store, which closes very late, they reprogram their machine that night in order to have, upon opening the next morning, the new tax system in place. Then they have to do that all again on a weekend as well in mid-February. None of this can be done in advance by the businesses as much of the programming is manual and needs to be done at that moment in each store across the country.
This is a logistical nightmare and has turned what should be good news of a tax reduction into an implementation challenge of high order.
Another good example, as I will close, is that a hobby store owner told us he has 3,500 items. He has to go through every single one of these and make judgment calls on which ones will be exempt and which ones will not. Just today, we got some advice from the CRA as to some of the questions that he had. He’ll have to make decisions between adult LEGO, children’s LEGO, dolls for play, dolls for collection, model planes oriented at children, model planes oriented at adults, and the same for trains. He has to reprogram his machines. He has to do it again February 15, train the staff, deal with customer complaints. With returns, he has to ensure that his staff, if somebody returns an item after December 14, returns the GST. And then in February, if somebody returns a good that they bought during the holiday period, ensure that they don’t refund the GST or HST during that period.
These are just some of the issues that businesses now have 11 days to implement, without this legislation even being passed. The government took five years to figure out a formula to return the carbon tax rebate money to small businesses and then gives small businesses 11 days to make a change of this size and magnitude.
I’m happy to take questions.
The Chair: Thank you, Mr. Kelly.
[Translation]
Senator Forest: Thank you for responding to our invitation on such short notice. Mr. Macdonald, when you look at the list of targeted products, and assuming that the tax holiday applies in full and won’t be marked up on cost, what class of Canadian citizens do you think will benefit? Certainly not food bank clients.
[English]
Mr. Macdonald: It is quite broad. If you look at food and restaurants, for instance, certainly this applies to fast food restaurants, but it also applies to fine dining.
If we take a look at the food in grocery stores, this applies to the chip and fruit juice and pop aisles, but it also applies to the fine chocolate aisles, so folks all up and down the income spectrum could plausibly benefit from this.
Certainly, folks with lower incomes will tend to spend most or all of their income. They don’t save their income, and so they plausibly see a slightly better benefit, but broadly, it is difficult to say who is going to benefit across the income spectrum.
[Translation]
Senator Forest: In your experience, which category of Canadians will benefit the most from this type of tax holiday? I imagine that it’s the upper-middle class; it won’t be the poorest people who go out to eat, buy fine chocolate or video games.
[English]
Mr. Macdonald: Certainly, when it comes to going out to eat, if you are going to a food bank, you are not going out to eat. If you are living in poverty or are homeless, you are not going out to eat.
The change in terms of the grocery store, about half of the store is already GST exempt, so the other half would now be GST exempt for that period. That might be of more benefit. Again, it very much depends on what you are eating. A lot of low-income folks have a very difficult time buying the types of things that are already GST exempt, things like fresh food, fresh meats. That’s not the sort of things you are buying if you are tight on your budget. You may be shopping in those middle aisles that will be GST exempt as a result of this holiday.
It is difficult to say, though. It will benefit a fair number of Canadians. It is not exclusively for any particular obvious group of Canadians, though, when it comes to the income spectrum.
[Translation]
Senator Forest: Mr. Kelly, you conducted your survey on November 26 and 27, just before the program was announced. Do you think this influenced the responses? Then in your survey, you say that 66% of retailers who sell eligible items say that consumers will just delay their purchases, but what’s most worrying is that 54% of retailers believe that people who made their purchases as part of the Black Friday sale could bring back their purchases back to buy them back during the tax-free period. Do you think that’s a credible perception?
[English]
Mr. Kelly: Just to be clear, 66% said that they expect that consumers will delay holiday purchases; 54% said that they believe consumers will return products to repurchase during the holiday period.
Anecdotally, we have heard of these stories happening at retailers of children’s toys, children’s clothes, of cart abandons as soon as the news went out; and an online retailer said that people started to abandon their carts in order to repurchase after that. Children’s toy stores said they were having some customers returning bulk purchases. Remember, if you have bought $300 worth of toys in an HST province, it is not a tiny amount of money that we’re talking about. I can understand why somebody may take that extra effort. Of course, they risk that the products will not be there when they go back on December 14.
For online retailers, this is further complicated by the postal strike, because now with consumers delaying purchases in some cases to December 14 and still wanting to get it before Christmas, Canada Post not being an option, retailers are really struggling to figure out how to do that.
Senator Smith: Mr. Kelly, you highlighted many concerns from your members, including the rapid pace at which they have to implement the policies, as well as the confusion that surrounds it. Could you expand on what kind of guidance or clarity your members seek from the government, in particular the Canada Revenue Agency, on implementation of this bill?
Mr. Kelly: I do believe that the Canada Revenue Agency is, right now, doing its best to provide some guidance. As soon as this policy was announced, we started to reach out to Finance to try to get some answers. Since CRA has gotten involved, I think we’re getting better answers. We just got some today.
For example, wine tasting. Wine tasting is the product, the wine, and the service, the tasting element of that. Finance told us it is actually just the wine that is exempt, but the winery doesn’t disaggregate the price to the consumer, so how are they to possibly charge that? They have now provided more guidance from CRA just today on how to do that.
In another example, hobby store owners said that the model plane for a child is exempt. What about the glue that holds the plane together or the paint that you apply to the plane afterwards? Are those exempt? There were no answers until today, as a result of us asking them.
But if you have 3,500 items in your store and you are having to ask my association to go to Finance or the CRA to get an answer for you, this is going to be an agonizing process, and that’s what we’re in.
Senator Smith: Also by the fact that CFIB represents over 95,000 small- and medium-sized businesses, if you multiply that by the numbers you were just talking about, then it would add to the concern. Are you concerned that this type of confusion or potential confusion could cause compliance issues for small businesses, especially if the CRA isn’t flexible?
Mr. Kelly: I am so glad you asked that question, senator. I believe that every single business in the entire country will get this wrong. I do not think there will be a single business that is able to implement this flawlessly without making some errors. I think restaurants will have an easier time. Food establishments, like Gary’s members, will have an easier time than most, but I believe there will be nobody that does this 100% accurately.
I had restaurant and bar owners reading the initial guidance that said beer, wine and under-7% alcohol, interpreting that as only beers and wines under 7% alcohol. They were going through each bottle all night to try to figure out which beers and how they’re going to exempt the tax from some and not others, only to then finally have clarification provided that it’s actually only the mixed spirit coolers that are under 7% that will be subject to this. These are some things that are happening.
We’ve asked Finance for a couple of things, and we’ve not heard back. First, I would like $1,000 — and, senators if you can impress upon the government for this, that would be wonderful. Our median amount of the compliance costs — just the hard costs, not the soft costs — is $1,000. If the government can, for those affected by this change, provide a $1,000 credit in their GST/HST accounts to cover off those hard costs, that would certainly help.
Second, I want an order from the Minister of Finance to the Canada Revenue Agency that they have to use kid gloves in enforcing this in March and April when the audits start, and unless they have evidence that a business is deliberately trying to flout the law, that they will, in fact, waive taxes, interest and penalties — not just waiving penalties and interest, but I want the taxes owing exempted from the businesses if they have made a mistake given the tight timelines to do this.
Senator Smith: We will be having quite a few phone calls in the next week.
Mr. Kelly: I think we will.
Senator Dalphond: Thank you to the members of the panel. My question is for Mr. Sands of the Canadian Federation of Independent Grocers. How many grocers do you represent?
Mr. Sands: Sorry, can you repeat the question? I had difficulty hearing it.
Senator Dalphond: How many members do you have, as independent grocers, in your group?
Mr. Sands: There are 6,900 independent grocers in Canada. We are a voluntary association and we have in excess of 4,000 to 4,500 members.
Senator Dalphond: You said you have about 7,000 members. So your members are kind of supportive of the measures because they feel it’s good for their clients. You heard about the nightmare situation that has been described by the member of another federation. Do your members feel that there’s such a nightmare ahead of them?
Mr. Sands: We haven’t heard the term “nightmare” used. I hear very loudly and clearly, and I’m sure Dan Kelly is the same. We hear very quickly from our members when they have issues. There’s no doubt about that.
I have heard very clearly from my members that there are significant challenges with the short on-ramp for this measure, and my members are overwhelmingly small- and medium-sized businesses. I repeat, they have more of a burden to implement this than a larger business would, but I haven’t heard them use “nightmare.”
When you’re an independent grocer — and I’m not just saying this like I’m on a commercial — you’re on the front line with your consumers, with your customers. You live in the community, you hire in the community and you’re part of the community. So the issue of affordability is very real and tangent for our customers, and that’s why our members support any sort of relief for their customers.
Senator Dalphond: This question is for you. Your members are very concerned about this affordability issue. I understand that. Are they committed to not increasing the prices and to take advantage of the 5% lower or 13% or 15% lower prices?
Mr. Sands: There’s no way the independent grocers are going to be increasing prices because of a tax reduction. What I was saying in my opening remarks, and I think it gets lost sometimes — I have to be honest with you — is that When people talk about rising food prices, there’s a laser focus on the retailers, but the fact is there are a lot of increases coming up through the supply chain.
I’ll ask you the question. If you’re an independent grocer and your margin is 2%, and your supplier increases, say, the cost of a can of beans by 4% or 5%, what do you do? You must pass that on or you won’t be an independent grocer. You won’t be in business.
Senator Dalphond: Thank you.
Mr. Sands: I just want to say, I don’t point the fingers at suppliers. We know what is driving up costs, but costs are still going up.
The Chair: That’s clear, Mr. Sands. Thank you.
Senator Ross: First of all, thank you to all of our panel this evening. I have a question for you, Mr. Kelly. We heard from the Retail Council of Canada that there would be a benefit to business through the input tax credits. What you’re telling us is that manufacturers and distributors are also going to have the tax holiday, so it would be a wash. But how would people manage that in terms of inventory management? Do you anticipate that people will buy a lot of product from their suppliers during the holiday time and not have to pay tax, and then after February 15 they can collect tax, or vice versa? How do you think that will work?
Mr. Kelly: I was a bit stumped by the Retail Council’s focus on that issue to be honest, but this was a question we were getting from a lot of business owners. One of the biggest concerns was, “I paid the GST or HST on my inventory that is now in my store that I am selling, and I’m going to charge 0%.” In their head — and, of course, that’s correct — the retailer charges the 15%, and then, of course, gets to deduct the GST or HST that they’ve paid on the supply, and so it’s a wash for the business.
There was great concern that they would then not be able to deduct the input tax credits — or the GST or HST — that they’ve paid. The government has, to its credit, clarified that if you’ve paid that on your supply, you get to deduct it whether or not you’ve charged the tax. So it is a wash for retailers as they go into the season. And during the holiday period, the suppliers don’t charge HST on that.
Are you going to have, of course, retailers buying things more than normal during that period of time? I don’t think that really will happen, because, of course, you only get the money back if you paid the tax in the first place. To be fair, I don’t see that as a net problem, and I don’t see it as a net benefit for businesses either. On that front, I see no win or loss, other than the fact it is largely unknown among many in the supplier community that this is even a responsibility that they have. It’s one of the reasons why I believe there will be thousands and thousands of businesses that don’t do anything, not knowing that it actually applies.
Senator Ross: Mr. Kelly, if you had a crystal ball and you could predict the best way to give a break to consumers as opposed to an HST/GST holiday, what do you think would be a better way to help consumers with affordability?
Mr. Kelly: Like every business association, we have our own list of tax reductions we would love to see happen. If I was focused on doing that not for businesses but for consumers or taxpayers, I would focus — I think a lot of business associations would agree — on lowering payroll taxes, which would have a huge beneficial impact. That is, you could lower Employment Insurance and Canada Pension Plan premiums. Those have been rising, especially CPP, in the last number of years. That would be one good way to do it.
If you’re going to make any GST or HST changes, for goodness’ sake, let’s make them permanent. I’m old enough to remember when the GST came into place. I can tell you, we didn’t land on the six doughnut rule immediately. It took time, experience, and back and forth for groups to figure this out, but at least it was for good, it wasn’t for a period of time. If we’re going to trim the amount of products to which the GST and HST is applied, let’s do it once and then leave it alone.
[Translation]
Senator Moreau: My question is for Mr. Macdonald.
Mr. Macdonald, the government is telling us that behind this measure is a desire to act quickly, in other words, to give Canadians quick access to tax relief. You can be for or against the measure, but that’s the government’s message. You indicated in your remarks that if the $1.6 billion in question were used, for example, to increase the family supplement for children, we would reach more of the target clientele. Isn’t it true that the idea of increasing the supplement wouldn’t have as immediate an effect as what the government is seeking? If I’m right, do you have any other measures to propose that could have such an immediate effect, with the same amount of money?
[English]
Mr. Macdonald: One of the lessons of the pandemic was that the CRA is capable of rapidly providing cash transfers to Canadians given they have a list of whom to send them to. The recipients of the GST credit are a good example of that, and it is already income tested. You could take a subset of that group, focus this $1.6 billion into that group, and instead of providing $5 or $10 on a meal, you provide hundreds of dollars for folks who are living on the edge of poverty or living in poverty.
If we’re looking for speed, the CRA has gotten much better at moving those programs quickly, and I think this is something that could be done quickly if there was an interest in doing that. That’s not what this is about particularly, but this is one of the benefits of the CRA pushing out several benefits over the last couple years, one time, one-off, relatively quick benefits. We could be doing this much more quickly, and CRA now has the tools and the experience to do it after some of the pandemic benefits.
[Translation]
Senator Moreau: What you’re saying is that we’d have immediate measures. However, could we think of something other than sending cheques? We know that what’s being proposed is to send cheques. Our economists all tell us that this has an immediate effect on inflationary pressures.
[English]
Mr. Macdonald: With $250, it’s a relatively small amount because it’s spread so widely. In essence, the proposed $150,000 cap includes basically everyone because 95% of people make $150,000 or less. Yes, it excludes the top 5%, but in essence, everyone is getting that cheque who has employment income.
If you took that same amount of money, which would be $250 per person, $500 per family, and concentrated it into a much smaller group of people, now you’re into the thousands of dollars that you might be pushing towards people who are going to food banks, that are living on the edge of homelessness, that maybe can’t make the rent. It becomes potentially less inflationary, or that money would probably make it to the economy, and if you’re sending $250 cheques to people who make $150,000, they’re just as likely to save that money as spend it.
That’s the other problem with sending money to everyone in a stimulus effort. Money can equally well be saved. If you send it to folks at the low end, they’re going to spend it immediately on basic goods and services. Food banks are closing because they cannot service the demand. It would be better if those folks had enough money to go to the grocery store like everybody else and buy the food they want.
[Translation]
Senator Moreau: In fact, your proposal isn’t so much about the measure as it is about the number of people who could benefit from it. Is that correct?
[English]
Mr. Macdonald: Affordability and an increase in prices has affected everyone, but it has pushed some people much harder over the line into visible and invisible homelessness, into food bank usage — which is at record highs — despite the fact that employment is not a record high. It’s rising, but it is not at a crisis level by any stretch. Those are the folks who have been hit much harder than everybody else by the increase in prices, particularly with increasing rents and housing costs.
You pay that rent first, you pay for food second, and you pay for going out to dinner and buying Christmas presents for your kids as distant third and fourth. You have to pay rent, otherwise you get evicted. So with that rapid increase in rent, we’re seeing the affordability crisis merging into a homelessness crisis and food bank utilization crisis at the same time.
If we’ve got $5 billion to spend, it’s a question of opportunity costs; where could we spend this money and have a bigger bang for our buck affecting the people who have been most impacted by the affordability crisis?
Senator Pate: Mr. Macdonald, continuing along that line, as you mentioned, we saw some huge benefits in terms of people spending in the economy when they were provided with resources during the pandemic through the CERB.
The two-month GST/HST measure in Bill C-78 will cost $1.6 billion. Combined with the measures proposed to provide the $250 cheques, we’re talking now about $6 billion.
The PBO has indicated that the annual net costs — not including downstream savings of providing a form of basic income to everybody in need of Canada — would be about $3 billion. Do you have any thoughts or any insights about the benefit of having taken an action like that? I know you looked at things like downstream costs. What kind of downstream cost savings would you see on a basic income versus these measures that have been put in place?
Mr. Macdonald: We already have a variety of basic income‑type programs for most Canadians, not inclusive of people of working age that don’t have children. There are almost no supports for them. The Canada Disability Benefit will rectify part of that, but it’s extremely low in comparison. However, for families with children, the Canada Child Benefit is absolutely a form of basic income for families with children; it absolutely sets a floor on incomes.
The combined Old Age Security and the Guaranteed Income Supplement for seniors absolutely sets a floor on income of about $20,000 for seniors, which can go up from there, depending on provincial programs, the Canada Pension Plan, and so on.
We already have programs of basic income for particular groups, and so the thought in my mind is, let’s not throw those away; let’s use them. They run, they exist. The CRA sends cheques out, people get the money. Let’s not throw them away, let’s use them. How can we change them to improve them, particularly to target people in the lowest poverty, and really try to reduce poverty rates?
During the pandemic, we saw a plummet in poverty rates as a result of CERB and as a result of government transfers to folks with some form of employment income, and then poverty rates went right back up again. We had a goal of cutting poverty rates in half from the 2015 start year. We achieved that. Mission accomplished in 2020. The goal wasn’t to do that until 2030, but we did it in 2020, and we should be trying to do that again.
In terms of the Canada Child Benefit, there’s a supplement that we’ve proposed that would boost the Canada Child Benefit, particularly for people with little or no income, of $8500 per child. The Canada Disability Benefit is, unfortunately, terribly low and is going to be difficult for folks to access. We could make it much more accessible if we used other definitions provincially. The federal definitions of disability didn’t force people to get a DTC certificate, and made it a lot more generous. And certainly for folks who are seniors, there has been a focus on Old Age Security, whereas it could have been more focused on the Guaranteed Income Supplement, whereby spending the same amount of money you get a bigger bang for your buck in terms of poverty reduction.
There are plenty of things we could be doing that help folks stay out of poverty, better afford the higher prices of goods and services, particularly the higher price of housing, so that the affordability crisis that has hit them much harder is slightly less severe.
Senator Pate: And in terms of downstream savings, health care, the criminal legal system, those sorts of things?
Mr. Macdonald: What’s interesting is that the level of government spending the money isn’t necessarily the level of government receiving the benefit.
So you will certainly get a benefit, potentially, in terms of decreased use of the health care system, decreased use of social housing, decreased dependence on provincial forms of social assistance, which is sort of the last stage, particularly for folks with disabilities. The provincial social assistance systems have become disability support systems, in essence.
The federal government spending more on the Canada Disability Benefit would mean savings for the provinces in terms of social assistance, interestingly. But there are certainly downstream effects and they largely accrue at the provincial level, not the federal level.
Senator Loffreda: Thank you to our panellists for being here. I have a few questions. One would be for Mr. Sands from the Canadian Federation of Independent Grocers. Are your grocers administratively able to adapt and correct the prices for this temporary relief, or will it create a burden if it’s only temporary? Going forward, when they do have to charge the GST once again, would that create an additional burden, an additional cost for your grocers? Are they in favour? Because we’ve heard Mr. Kelly say that 62% oppose this measure, 66% will delay purchases, 54% will return products. What are the statistics for your independent grocers?
And I have a question for Mr. Kelly, if there’s time, once that is answered.
Mr. Sands: I would just restate that there’s no doubt that there is a burden that is going to be assumed by our members implementing this change and then exiting this change. There’s just no doubt about that. I just have to tell you, though, that our independent grocers are just so immersed in their communities, they know how much the affordability crunch is affecting their customers. So even though this is a burden, and we don’t know how it’s going to affect sales because our sector is a lot different, it’s not discretionary; you have to buy food. There’s no taking stuff back and buying it again, but our members are still supporting this measure because they see it as something that is going to help the customers that they see day in and day out in their stores. And that’s just basically why we are supporting this particular measure. It’s not a panacea, by any means. We have lots of other ideas for addressing the affordability issue, but in terms of this measure, we still have to support it because it’s the right thing to do to help consumers.
Senator Loffreda: It is doable, and they will be able to put everything into place on time, precisely.
Mr. Sands: I think Dan had a good point. There are still a number of questions our members are asking and seeking clarification from CRA. And I think what Dan was saying earlier is absolutely right. We need an assurance — those of us who represent predominantly small- and medium-sized businesses — that kid gloves will be used. I echo that in terms of any issues that arise out of a lack of clarity; there should be absolutely no consequences for the business involved, and I think we all would align on that.
I have to believe the government would agree with that too.
Senator Loffreda: I’d like to ask the question to Dan Kelly. This measure is put in place to benefit consumers, right?
Mr. Kelly: Yes.
Senator Loffreda: I’ve repeated the statistics, and we talked about food banks and homelessness. Do you feel that your survey or your responses are representative of the businesses that will be dealing with the consumers that will benefit from this measure? I can understand the businesses saying, “This is a burden,” but they’re not the ones we’re targeting. We’re targeting those that will really benefit.
Mr. Kelly: Senator, I hear what you’re saying. Small businesses want their customers to benefit. It’s good for the consumer and ultimately good for business. If consumers have more aggregate dollars in their pockets, absolutely, those dollars often get spent, and some of that gets spent in small- and medium-sized businesses, and business owners get that.
They don’t want to stand in the way of consumers getting any kind of temporary or permanent relief, it’s just that we found the most complicated possible way to do it. The timing sucks. If we were looking sincerely to do this, give businesses six months to try to get this thing rolling, give them some guidance, answer all the questions up front so that we don’t have to chase government for answers.
And I appreciate the Senate has been given no time too, but by the time you get through this legislation, there are going to be 10 days for businesses to implement legislation that has come into place. That’s just not fair.
Senator MacAdam: In your flash survey, you indicated that small firms reported a median of $1,000 of additional costs to reprogram their point-of-sale systems for this change. I’m wondering, were there any estimates of other additional costs that would be incurred? Do you have any numbers around that?
Mr. Kelly: Yes, I shared with the committee an example from a small chain of convenience operators that estimated that the actual hard and soft costs would be $50,000 to implement that, and that’s just for a small chain.
What business owners are telling me is that they are staying up at night trying to figure out and divine what the government’s intention is. For the PS4 machine, the video game controller has a joystick and there’s a little cover for the joystick that you can buy. Is that going to be GST exempt or not? This is the kind of soft cost; business owners are having to make these decisions. The Department of Finance and the CRA, with all of their people, are not going to be able to itemize every single product sold in Canada in this period of time and give you a guarantee as to what is taxable and what is not.
When people purchase those prepackaged gifts at the grocery store that have some hard goods, like a coffee cup or a mug in it, and they have some food products in that, is that going to be taxable or not taxable? Is it going to be dependent on the percentage of food in that? These are some of the administrative questions that we’re getting and we don’t have answers until we ask them, and then it may be days before we do that. Businesses have no time.
Senator MacAdam: Okay, thank you.
The Chair: Thank you, Senator MacAdam.
[Translation]
Thank you very much for being here on such short notice. It’s really impressive and much appreciated. We have a lot of respect for you and thank you very much for being here. We’re sorry, but we can tell you that it was worth it.
The next meeting is tomorrow at 4:15 p.m., to continue the study of the bill, with the Deputy Prime Minister and Minister of Finance, and the senior officials accompanying her.
Thank you, everyone. Thanks to the whole team; we appreciate the work of our clerk and analysts. It’s a real feat to hold this kind of meeting on such short notice. Thank you very much, and we’ll see you tomorrow.
(The committee adjourned.)