One of the most anticipated measures of the 2023 Canadian federal budget is the grocery rebate. The rebate is designed to provide relief to millions of Canadians who are struggling with rising grocery prices and food insecurity.
It is a temporary cash transfer of up to $467 for eligible couples with two children, $234 for single Canadians without children and $225 for seniors.
The rebate will cover 11 million low- and modest-income Canadians and families who currently receive the quarterly Goods and Services/Harmonized Sales Tax (GST/HST) Credit, which is based on recipients’ net income from their previous tax filing.
As I argued in an earlier The Conversation Canada article, the GST/HST credit is the only program that provides targeted assistance to Canada’s low-income population. It provides a maximum annual benefit of $306 per adult and eligible dependant, plus $161 per child under 19 or for single individuals, and is paid quarterly.
Gradual policy changes
The GST/HST credit is an example of policy incrementalism — gradual changes that take place over time. The original refundable sales tax credit was introduced in 1986 to help about four million families and individuals. It paid $50 per adult and $25 per child for incomes below $15,000 annually.
Canada has a history of similar incremental policies. 1967 saw the introduction of refundable credits for seniors in the form of the Guaranteed Income Supplement. 1978 saw the introduction of the Child Tax Benefit — which eventually became the Canada Child Benefit in 2016.
What distinguished the sales tax credit (later renamed the GST credit) is its universality. All residents of Canada over the age of 19 are eligible for the credit, provided their family or individual income is sufficiently low.
Policy advocates often dismiss incremental policies as too modest to make a difference, and the grocery rebate is no exception to this criticism.
The often suggested alternative is the great leap of faith to a fully funded and unconstrained new policy initiative, but even momentous advances, such as medicare, proceeded in stages. Canadian medicare began with universal medical coverage in Saskatchewan in 1962, before spreading to the other provinces over the rest of the decade under federal legislation.
History teaches us that policies requiring significant government funding usually start out as a smaller, pared-down version first. A limited and less expensive policy allows the government to assess the popularity and public willingness to pay for expansion of the policy.
The new Canadian Dental Benefit is limited to $1,300 over two years for children under 12 in families with incomes under $90,000. The expected national pharmacare program is likely to follow a similar path of modest beginnings.
The GST/HST credit fits within a grander scheme for a basic income in Canada. The basic income movement in Canada argues for an unconditional cash transfer to enable everyone to meet their basic needs, participate in society and live with dignity, regardless of work status. That goal can be met with a universal taxable benefit.
Alternatively, as is most often proposed in the North American context, the goal could also be met with a benefit that is reduced as income grows, so that only lower-income families and individuals are recipients. The GST/HST credit meets these requirements.
This approach has a significant policy history as a negative income tax or guaranteed annual income. The essence of this approach is to provide a maximum benefit for those with lowest incomes, a benefit that is reduced as income increases, and a break-even level of income beyond which no benefits are paid.
Instead, we have witnessed significant incremental policy developments, primarily for seniors and families with children, that leave gaps for couples and individuals without children.
Making the rebate permanent
The GST/HST credit rectifies policy gaps for couples and individuals without children, but is still very modest. The grocery rebate could be made permanent by doubling the size of the GST/HST credit.
Doubling the GST/HST credit would result in a refundable annual benefit of $1,868 for a family of four or $936 for an individual. This would still only amount to a modest four to five per cent of Canada’s official poverty measure.
Permanently doubling the GST/HST would cost the government about $5 billion. That’s in the range of other program initiatives like the dental and pharmacare plans. It would signal the government’s intent to address poverty and achieve Canada’s official poverty goals.
Affordability encompasses the rising cost of basic needs and its impact on lower-income Canadians. The 2023 budget addresses these concerns in terms of child care, junk fees, predatory lending, the right to repair and housing.
It is difficult to see how these measures, or others taken by the provinces and territories, will have significant and immediate effects on Canadians like the grocery rebate will. In addition, only some of these measures target basic needs and those least able to meet them.
The main weapon against the rising cost of living continues to be monetary policy. This leaves income assistance as the primary way to protect those less fortunate and the GST/HST credit as the best universal lever available.