Moved second reading of Bill C-78, An Act respecting temporary cost of living relief (affordability).

She said: Honourable senators, it is my privilege to speak on Bill C-78, the tax break for all Canadians act. In short, this legislation proposes to provide a two-month break in the goods and services tax/harmonized sales tax, or GST/HST, on purchases of seasonal holiday expenses that are not normally tax-free, like groceries, restaurant meals, drinks, snacks and children’s clothing and toys, from December 14, 2024, through to February 15, 2025.

As the bill’s sponsor in the Senate, I would like to thank the Deputy Prime Minister and Minister of Finance for entrusting me with this responsibility. It is my honour to do so, as I believe the temporary consumer tax relief contained in this bill is an appropriate action for the government to take at this time.

This measure will benefit each and every Canadian, without exception, by allowing them to save money on essentials like food, baby diapers and children’s clothing and shoes. This tax relief will also act as an incentive to purchase products that are especially popular during the holiday season, like toys, alcoholic beverages, and restaurant and takeout meals.

Companies also stand to gain from the measure through increased patronage after the holiday season, when business usually slows down.

Bill C-78 strikes a balance between the financial interests of Canadians during the holiday and new year season, typically a more expensive time of year. It also considers the interests of businesses in key sectors like the restaurant industry, which was hit especially hard during the pandemic and is still struggling to recover, particularly because of Canadian consumer habits.

My speech will begin with a review of the current economic situation to explain the reasons behind the timing of this relief measure. Next, I’ll provide an overview of the products eligible for tax relief, and finally, I’ll give examples of the tax holiday’s potential financial impact on Canadians.

Is it the right time for a tax break? As senators know, Canada is at a crucial point in its economic recovery. The past few years have been especially difficult for Canadians. We’ve seen inflation rise around the world to levels not seen in decades, first because of the global COVID-19 pandemic, then because of Russia’s illegal invasion of Ukraine, which led to higher energy prices, and finally, because of disruptions in supply chains.

Thanks to the hard work and resilience of Canadians, we have successfully weathered this economic storm. Several key economic indicators have improved remarkably. Inflation was at 2% in October and has been within the Bank of Canada’s target range for 10 months now. The key interest rate has been cut four times this year, and a further reduction is expected in the next few weeks.

This is good news, not only for Canadian homeowners with mortgages, but also for businesses that need to borrow and invest in the growth and success of their operations.

In terms of employment, things improved significantly after the recession that was triggered by COVID-19. That trend has now slowed. Although 1.4 million more people than before the pandemic now have a job, we see the unemployment rate increasing across Canada, mainly among young people and marginalized groups.

What’s more, over the past 21 months, wage growth has surpassed inflation in Canada. The International Monetary Fund projects that Canada will have the second strongest economic growth of the G7 countries in 2024 and the strongest growth in 2025. It remains to be seen what impact the U.S. election and the arrival of a new president will have on the financial future and economic growth of our country in 2025.

Although our country’s current economic situation is steadily improving, consumption tax relief measures are necessary and will benefit Canadians for two interrelated reasons: first, the influence of economic developments on consumer confidence; and second, how this confidence directly affects tangible economic outcomes, such as growth and the restoration of full production capacity.

Canada is currently facing the challenge that spending per capita has remained subdued in the wake of the pandemic. This subdued spending is partly the result of affordability challenges that are an inevitable outcome of higher inflation and the impact of elevated interest rates over the past two years. And it is complicated by the fact that the effects of lowered interest rates can take time to work their way through the economy, as well as for them to have a positive impact on the finances of everyday Canadians and, in turn, on consumer sentiment.

This challenge is not only complex but also very real because this drag on consumer sentiment can have very real adverse impacts on economic outcomes. With per capita consumer spending subdued in the wake of the pandemic, the Canadian economy has been operating below its potential capacity for over a year. This challenge is, however, not one that is new or unique to Canada, nor is the solution.

The solution has been used successfully at many times and in many places around the world, including most recently in response to the COVID-19 pandemic. The theoretical basis for this solution was established by John Maynard Keynes who understood that government intervention in the economy through measures like government spending or tax reductions that increase aggregate demand can, under the right conditions, result in a positive shift within the economy.

Keynes understood how money cycles within an economy and that one person’s spending can directly influence another person’s earnings and that an increase in earnings leads to a subsequent increase in investment, with knock-on effects throughout the economy, as increased private sector profitability supports broader economic activity.

This understanding has been successfully put into practice at many times and in many places and under many different challenging circumstances. The practice of doing so is now commonly referred to as “priming the pump.” And the most famous early instance of its success was perhaps when President Roosevelt used it to support America’s recovery from the Great Depression.

Colleagues, in Canada today, with strong economic fundamentals and lower inflation on the one hand, and weaker consumer confidence on the other, I think that targeted intervention of limited scope would benefit Canadians and the national economy.

It would help lift the somewhat gloomy mood weighing down consumer spending and strengthen Canada’s performance going forward.

The conditions are right, partly because the government has the means to make this kind of investment. The International Monetary Fund expects that Canada will continue to have the lowest net debt and deficit in the G7 as a percentage of the economy both this year and for the next two years.

With Bill C-78, the government is taking targeted action for a limited time, which will have a clear benefit for Canadians and give a boost to the national economy.

I will now delve into more details about the bill, in particular to provide an overview of the products that will be eligible for this tax relief. Bill C-78 would temporarily increase aggregate demand at a time of the year when Canadians face higher-than-usual costs by lowering those costs. It would do so by making holiday season purchases tax-free from December 14, 2024, through to February 15, 2025. Specifically, the articles to be GST/HST-free would include the following: prepared foods, including vegetable trays, pre-made meals and salads, and sandwiches; restaurant meals, whether it’s dine-in, takeout or delivery; snacks, including chips, candies and granola bars; beer, wine and cider; premixed alcoholic beverages of not more than 7% alcohol by volume; children’s clothing and footwear, car seats and diapers; children’s toys, such as board games, dolls and video game consoles; books, print newspapers and puzzles for all ages; and Christmas trees and similar decorative trees.

In short, the bill will eliminate the GST/HST on many consumer goods, goods on which people spend more money during the holidays.

For example, with this bill, the government will exempt almost all food items from the GST/HST for two months. Although many food items in the grocery store are already tax exempt, many people will benefit from the exemption on prepared meals. Many young families with working parents will benefit from the GST/HST holiday on these prepared meals, which make their everyday lives easier.

By exempting most foodstuffs from the GST/HST for the period in question, the government will help Canadians save a lot of money. This measure will also increase overall consumer demand for certain products, which could increase private sector revenues and stimulate overall economic activity.

This economic stimulus would boost consumer confidence. Once that shift has begun, the need for government intervention will diminish. Bill C-78 takes into account this effect and limits this support to a predetermined period of time. The reasoning behind this bill is based on a proven economic theory.

This bill highlights Canadians’ efforts in recent years and provides them with additional support, while recognizing their essential role in the success of a strong recovery both this year and next.

This is the impact of relief in figures.

This measure, estimated at $1.6 billion, will directly reduce costs for Canadians. For example, a family spending $2,000 on eligible products will save $100 in taxes over the same period. All Canadians will be entitled to a discount of at least 5%. In provinces where the HST will be eliminated — Ontario, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island — savings will be even greater. For example, New Brunswickers who normally have to pay a 15% HST will be able to save $300 on expenses totalling $2,000.

This difference is significant for Canadians who live humbly and have had to change their spending habits in recent years due to inflation. A 5% to 15% reduction on a range of essential and leisure products during the targeted period will enable a large part of the population to approach this period with a more festive spirit.

In conclusion, with inflation having cooled and interest rates dropping, Bill C-78 is presenting us with the opportunity to support Canadian consumers and businesses in a way that is not going to stimulate inflation, but rather it is going to help Canadians make ends meet and continue driving economic growth. As the government has made clear, it’s about leaving Canadians with more money in their pockets at a time of the year when expenses are higher in order to help offset the cost of the things they need so that they can save for the things they want.

This is about helping families for whom extra expenses around the year-end holiday season can be a financial burden, so they can enjoy this time of year a little more. This is also about sustaining the pace of our economic recovery and overcoming the negative effects the recession has had on consumer morale.

I firmly believe that this measure is not only appropriate, but also timely, for all the reasons I just gave. I urge senators to join me in voting to pass this bill.

Thank you for your attention.

Senator Moncion, would you take a question?

Of course.

First, thank you for the noon-hour info session you organized with Finance Canada officials. This bill is pretty straightforward, I have to say. It’s not very hard to understand. However, there are some issues. It is my understanding that, because the bill was not referred to a House of Commons committee, the Standing Senate Committee on National Finance will have an opportunity to ask questions and discuss the economic rationale for this $1.6-billion measure.

To my knowledge, this is the first time since I’ve been in public finance that the federal government has unilaterally decided to change the list of exempt products without first consulting the provinces that have harmonized their tax. We’re talking about a $62-million loss of revenue in New Brunswick. Nova Scotia is in the middle of an election, so people are choosing their positions. Don’t you think it would be more productive for the federal government to take a position on this issue and decide whether it will compensate the provinces that have harmonized their tax?

In the Senate, we’re motivated, at least I am, to protect minorities and the interests of the provinces. It seems to me that we should take this to heart, as senators, when we see that the provinces aren’t being compensated in the context of unilateral decisions by the federal government. Perhaps revenue losses don’t send the right signal. Could you approach the Minister of Finance about this?

Thank you for your question, which is both very interesting and important. We have to remember that, when the government makes these decisions, it negotiates with and consults the various provinces. We know that the federal government is currently in discussions with the various provinces and territories. Therefore, even if the government hasn’t committed to repaying the sums, I still believe that the government will want to find a way to harmonize its decision and reach amicable agreements with the various provinces. We know that negotiations are currently under way.

This could lead to biases. For example, during the holiday season, people might choose to dine in Ottawa rather than in Gatineau, given that it will cost 13% less here than on the Quebec side. Will the federal government decide right away whether it will financially compensate provinces that harmonize the sales tax? I’m sure the Quebec government, which administers the federal sales tax, would like to know. As the expression goes, what’s good for the goose is good for the gander.

Thank you. If Ontario is “the goose” and Quebec is “the gander,” then as an Ontarian, I’m happy with the advantage this gives the goose. On the other hand, I understand your dilemma. I wonder how the interpreters will handle all this.

What I can tell you is that these details are part of the discussion. I’m confident that this won’t be a unilateral decision and that the federal government didn’t intend to create an imbalance between the various provinces.

Will Senator Moncion take a question?

I’ll take all senators’ questions. There’s no need to ask. I’ll keep answering until my 45 minutes have expired.

Thank you. Although I’m in favour of the bill in principle, I share the same concern as my province, New Brunswick, about its economic impact. That is the first concern. As my colleague said so well, I’m also aware that this initiative to lower the cost of living for Canadians is, in itself, legitimate.

The holiday period is a time when families and parents don’t restrict the type of food they eat quite so much. Far be it for me to judge what parents do. That being said, from a public health standpoint, I’m amazed at the comprehensive list of products, including some that are considered to be not very good for one’s health.

I will focus mainly on the issue of alcohol. In New Brunswick, the rate of excessive alcohol consumption is 21.3%. I don’t have exact data on alcohol-related accidents and loss of life, but we have to recognize that it is a reality. I find it hard to understand that alcohol is included in this list of exemptions.

In your opinion, why would the government not adopt a more ambitious and sustainable measure by completely and permanently eliminating the GST and HST on healthy food sold in grocery stores, while excluding alcohol? Should the committee look at revising this list that is of concern to so many Canadians?

Thank you for your question, Senator Cormier. As you know, Canadians eat unhealthy food whether it’s taxed or not. As much as we wish everyone had exemplary eating habits, many people don’t. The holiday season is for families. It’s often a time between two seasons. Winter is starting, people spend more time at home, and lots of family members come to visit over the holidays. I think the government’s intention was simply to reduce the financial burden of various taxes. People are going to eat what might be considered junk food whether it’s taxed or not. That answers your question in part.

With respect to alcohol, again, the rationale is the same. People will drink whether it’s taxed or not. I understand your concern about people driving under the influence. There are many services available, such as Operation Red Nose, Uber, taxis and designated drivers who don’t drink. There are other ways, you see.

The ultimate goal is to help young families have a better holiday season, to put a little more money in their pockets so that they can have a nice Christmas. When it comes to gifts, Christmas isn’t necessarily about adults, but about children. For adults, Christmas is more of an opportunity to talk and socialize.

I agree with your concerns about the food items in question not necessarily being the healthiest. However, that being said, everyone tends to overindulge during the holiday season, no matter who they are.

According to the end date of this measure, the holiday season is going to last until Valentine’s Day. I’m glad that we will be able to celebrate with our sweethearts for less, but that means that, as of February 16, Canadians will have to once again pay taxes on essentials, such as children’s clothing and shoes, baby diapers and car seats.

Do you agree that we should simply do away with the taxes on these essentials for young Canadian families, not just during the holiday season, but permanently, year-round? You spoke about the economic challenges facing Canadian families. Would that not be a better, more long-term way of helping Canadian families?

I agree with you. It would be ideal if we could live in a tax-free environment. A lot of products are tax-free. In the case of children’s clothing, families would indeed be able to hang on to more of their money if they didn’t have to pay taxes.

As for the government’s intention, again, if I was the Prime Minister, I would probably listen to you. It is by no means a job I would want.

These items could be negotiated with the government; they’re choices made from a tax perspective, not necessarily within the framework of this bill. However, I’ve taken note of your intention.

Senator Moncion, I would like to ask the government leader, Senator Gold, this question. However, according to today’s scroll notes, Senator Gold is again not giving a second reading speech on this government bill, Bill C-78, so, as sponsor of the bill, I will ask you.

Yesterday afternoon, Senator Gold, for the government, sent an invitation to senators for an in-person technical briefing on Bill C-78. This technical briefing was set for today, Tuesday, between 12:30 p.m. and 1:30 p.m. The invitation stated that this briefing was “limited to senators and one staff per senator’s office.” One part was underlined, stating, “Please note that only senators will be able to ask questions.”

Senator, the time of this technical briefing today conflicted directly with our Senate Conservative caucus meeting, which we have every week. According to a weekly schedule chart we received at the Rules Committee last spring, I believe that the time of this technical briefing also conflicted directly with the caucus or group meetings of the Independent Senators Group, the Canadian Senators Group and the Progressive Senate Group.

Since only senators were permitted to ask questions at this government technical briefing on a bill the government is trying to get passed quickly, why did the government set this briefing for that time?

Thank you, Senator Batters, for the question. The government briefings are usually meant for senators only. Today, I was chairing, and we had staff present. Senators’ staff were invited to sit at the table and were able to ask questions in the name of their senators.

Further, if there is another time that you would like to receive a briefing, I would be glad to arrange it and see if the government officials who were there today could attend and provide this briefing.

The questions being asked by senators are important. I’m glad that you — and perhaps some of your colleagues — have the opportunity today to ask a question or a few questions here for clarification on this bill. It is not a complicated bill, and there are questions not related to the bill per se but more to everything that is outside its scope.

If you would like to have a meeting, we could get some people together and hold another briefing.

Thank you. I think it is probably preferable if the government generally sets times that they know won’t be incompatible with almost all senators’ schedules.

Senator Moncion, many of the temporarily GST-free items in Bill C-78 were recently proposed by the Liberal government’s coalition partner, the NDP, but I noticed at least a couple of notable differences. The NDP proposed a GST holiday on home heating, but that is not included in Bill C-78. Perhaps the government didn’t want to remind Canadians about their carbon tax home heating fuel debacle from last year.

The government did include, though, as Senator Cormier pointed out, beer and wine in their Bill C-78 temporary GST holiday. Why did the government make that choice? That would also encompass dry January, which is a very common time for people to try to quit drinking.

Home heating is not included in the bill but beer and wine are. Why did the government make that choice?

Thank you for the question, senator.

First, in terms of the tight timelines for this bill, because we are receiving the bill today, one of the things that the government wanted to do was hold a first briefing as soon as it could once the bill was out.

On the question of home heating and the carbon tax, when the government was drafting this legislation, it was looking at a tax break for families. I understand that home heating is part of that. It wasn’t the intention of the government to touch that portion of items that we are taxed on in Canada. The government was looking more at family-oriented and children-oriented areas that the tax break could cover.

As for dry January, I really like that one because it reduces the amount of taxes paid. People will probably drink less during the month of January, which will cost less for the government.

The intention of the government was specifically oriented to children and families. That is why it was drafted this way. Those are the kinds of changes that could come at other times.

Thank you, senator. I assure you that my question is not about dry January.

Many senators will remember that back in 2021, then-Conservative leader Erin O’Toole put forward pretty much the same proposal for a tax holiday on GST during the month of Christmas. In an editorial in the National Post by Michael Smart, an economics professor from the University of Toronto and Co‑Director of the Finances of the Nation project, was glowing in his comments about that initiative. It had about the same price tag, under $3 billion to the treasury. In his comments, he even said that if it had any shortcoming, it was that the Conservative proposal was too modest.

Could I get your thoughts, senator, on whether you think this initiative should be going deeper? Should it be broadened to include more help for more Canadians?

Thank you, Senator Cuzner. I am not a tax expert or a tax lawyer. I am a senator. I have a family. Tax breaks are always fun to have because you spend less money or you get more money in your pocket to put toward other things.

Many colleagues have mentioned that there are more and more Canadians using food banks. We had a meeting last week with people from across Canada who are working at food banks, just asking questions on how they get money and work around the expenses and struggles they have.

Looking at this, a small change for just a few months, it is probably not the right time to make it broader. I think given the short time the government had to look at this, there must be a broader view on the taxation of goods and products used in Canada.

In my opinion, the more tax breaks we get, the better, but from the government perspective, I think the intention was limited to helping most families across Canada. We will all benefit from this tax break, regardless of whether we have children or grandchildren or will have company over the Christmas holidays, but the intention of the government at this time is to limit these exemptions.

Thank you for that response. Later in this article, this glowing reflection presented by Professor Smart — and this is particularly poignant at this time of year — he said, “There’s no reason to be stingy — especially around Christmas. . . .” He went on to talk about how there are benefits to this program further out.

Has the senator been made aware of any subsequent benefits? How long does the government believe that those benefits will continue to cascade out past the sunset period?

As I mentioned in my speech, there is a ripple effect — as you would say in English — where people save money and they use money to buy more, and it helps, down the road, the store who receives the money because then they can buy a little more so others benefit. I was saying that with the stimulation of the economy that this will bring, we might see a ripple effect down the road where people will start buying more because, in the last couple of years, what we have seen is a slowdown in purchases.

Even myself — to give you an example — when I go to the grocery store and I find an article that is way out of price, whether I need it or not, I am going to leave it there. It’s not because I cannot pay for it, but I refuse to pay these kinds of prices for articles that have gone up $3 or $4 from a couple of years ago.

It is a matter of how we see things moving forward. Maybe we will see in the next few months price drops in groceries and people buying more, so it will stimulate the economy more.

Thank you, Senator Moncion. There is no doubt that Canadians could use assistance financially with the cost of goods and services increasing, unemployment increasing and difficulties with housing.

As the sponsor of Bill C-78, do you know how many impacted small businesses or business associations were consulted with about the practicality of implementing a bill of this nature with very little lead time? Are you aware that business associations are indicating it will have a median cost of over $1,000 to implement and that it will be very difficult to implement? What do you think of the administrative burden that will be largely shouldered by small businesses?

Thank you for your question, senator. As for the first part when you asked about consultation, there was no consultation done by the government. The rationale behind that was that the measure was first announced on November 21, and from November 21 to December 14, this is the time that the different businesses will have to adjust to the changes.

As for the implementation costs, whenever there is a change in taxation brought by the government, it is assumed. It is a cost of doing business. It is the cost of compliance. This is how it is seen with the government. They do understand that there is an adjustment period. The adjustment period moving forward is longer than the adjustment period on February 15 when the tax measure reverses.

Senator Moncion, can you comment on the fact that by picking and choosing items from a broad cross-section and a variety of retail categories, it will require a full revamp of point of sale, or P.O.S., systems, bar codes, scanning and a review of potentially thousands of individual items of inventory regarding eligibility for those impacted small businesses?

I may have a different view on the revamping of P.O.S. systems. They are just systems in which you key in the amount, and the P.O.S. system does not usually have taxes that are added, unless I am mistaken. A point of sale for me is the little keyboard, but I may be mistaken.

As for how bar codes are programmed into the systems, I understand there is a lot of work that is going to be done because of the different items that will be chosen. One of the questions we had this morning was — let’s say Shoppers Drug Mart. They sell groceries, they sell pharmaceuticals, they do not sell children’s clothes, but they will have a lot of adjustments to make. As I said, it is compliance that is brought in that has to do with the work they have to do to get ready for December 14.

My question is related to what was raised by Senator Ross. I know that there was not consultation with small businesses, but consumers exist because we have the businesses that provide the products. It is quite disappointing and surprising that the small businesses or other businesses would not have been consulted as it will impact them as much if not more. That ripple effect will be felt.

According to the Canadian Federation of Independent Businesses, 75% of local businesses say that this will be very costly and complicated to implement. The concerns they have heard are regarding the Canada Revenue Agency, or CRA, and whether errors made in good faith will impact small businesses. What sort of penalties? You are talking about compliance, but I imagine there will be errors. Is the Canada Revenue Agency prepared for this change as well?

Thank you for the question, senator. So far, the Canada Revenue Agency has been answering the questions from these merchants and from Canadians also.

As for mistakes, there is a process that exists within the HST regulation that is already in place. There are forms that can be filled out by consumers who will have paid GST or HST on articles. Consumers can ask the CRA for the return of monies that they will have paid. It is the same system that exists right now when merchants are filing their HST or GST returns to the government when there are mistakes in all of that. That process has not changed. The forms are there, and that is how it is going to work. Within this legislation, there are no penalties factored into this bill for honest mistakes.

I am not sure, though, if we can believe that fully in terms of the onus on businesses to be compliant.

It is safe to think that the government rushed in to implement this without consulting a very important partner: the small businesses that are going to be providing this GST holiday for consumers. This rush is quite concerning, and I guess this is not so much a question but a conclusion based upon what I am hearing.

Senator Deacon wishes to ask a question, and there is not a lot of time left. Senator Moncion, if you would take another question, I will have to ask leave for more time.

I have no problem with more time.

Is leave granted, honourable senators?

Thank you, Senator Moncion. I wish to get clarity on consultation. We saw in The Hill Times an article saying that the Prime Minister and Deputy Prime Minister didn’t consult with their caucus or cabinet. They didn’t consult with businesses. They didn’t consult with the provinces. We’re not sure if they have consulted with the Canada Revenue Agency, or CRA.

I want to just get that list straight. Did they consult with the CRA in advance to see how they would handle what you have described as being honest mistakes? Small business people are very concerned about being compliant. If they are not, they suffer significant penalties. Point-of-sale systems are set up not just as what we tap our cards to, but it is the system behind the scenes. Every single item they sell in the store has an associated tax rate with it. They could make a mistake or there are items that are dual-purpose, maybe a Christmas present that is thought to be on this list and maybe has another use as well. The businesses are a clear partner in this not by their own volition but by being compelled to be a partner.

So provide any insight as to what consultation was done with the CRA. We know it wasn’t done with the others, but was it done with the CRA to ensure that small businesses will not end up having their sales at the most important time of the year disrupted, potentially not significantly but not beneficially, to their minds? How much confidence can you give us around the CRA? Because it appears they were not consulted.

Thank you for the question. Senator, I cannot give you any guarantees here. I cannot tell you that everything is going to be great. What I’m thinking is it’s not the intention of the government to penalize the merchants for this decision that has been made and that is going to be in place for a few months.

I would say with confidence that there is going to be flexibility within the system for the next few months to ensure that the intent of the government brings the outcome that the government is looking for. I don’t think the government is looking to penalize merchants. I think they want to stimulate the economy and they want to help families with a little more money in their pockets.

At the end of the day, we had a conversation about the role of the CRA in this, and there seems to be some flexibility, but it would be for that period of time. Then again, this is something that I could verify with the government just to make sure that I am not misleading you on this. I can get back to you on this.

Leave was granted for one question. Is leave granted for a supplementary question?

I hear a “no.”

Are senators ready for the question?

Is it your pleasure, honourable senators, to adopt the motion?

Some Hon. Senators: Agreed.

An Hon. Senator: On division.

(Motion agreed to and bill read second time, on division.)