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GST Break Could Cost Ottawa $2.7B if Provinces Don’t Waive Compensation

GST Break Could Cost Ottawa $2.7B if Provinces Don't Waive Compensation

The federal government’s two-month GST holiday could cost Ottawa up to $2.7 billion if provinces with a harmonised sales tax (HST) seek compensation for their lost revenue, according to the Parliamentary Budget Officer (PBO). However, the financial impact on Ottawa is expected to be significantly reduced if these provinces forgo compensation.

The GST holiday, from December 14 to February 15, will eliminate the 5% federal sales tax on items like children’s clothing, video games, and restaurant meals. In Ontario and the Atlantic provinces, where provincial and federal sales taxes are combined into a harmonised sales tax, residents will see even more significant savings ranging from 13% to 15%.

GST Break Could Cost Ottawa $2.7B

The PBO estimates the federal government’s cost of the GST break will be around $1.5 billion, which aligns with the Liberal government’s projection of $1.6 billion. However, if provinces with HST, like Ontario, demand compensation for the lost tax revenue, the cost to the federal government could rise to $2.7 billion.

Ontario has announced it will not seek compensation for its share, resulting in nearly $1 billion in additional relief for Ontario families, according to the province’s finance ministry. This decision follows similar moves from provinces like Prince Edward Island, Newfoundland, and Labrador, which have also waived their compensation claims.

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Finance Minister Chrystia Freeland’s office has encouraged other provinces to follow suit. “We hope all provinces will join us and provide their share of tax relief for their residents over the holidays,” said Katherine Cuplinskas, a spokesperson for Freeland.

In contrast, Saskatchewan Premier Scott Moe has indicated that his province will not adopt the GST holiday. Moe emphasised that some of the provincial sales tax revenue supports municipalities, and his government has already implemented other cost-saving measures, including reducing personal income taxes and removing the carbon levy on home heating.

While the GST holiday is designed to provide relief to Canadians during the holidays, the PBO’s report underscores the complexity of the policy’s financial implications, particularly for provinces with HST agreements.

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