Why taxing food staples should not be considered a policy option in Canada
Here’s an excellent piece by Sam Boshra, about the recent proposal by Michael Smart and Jack Mintz to apply the GST to food, from Sam’s blog at Economic Justice:
Low-income households can’t buy food today with a larger HST rebate they hope to get sometime in the future.  A key objective of the social safety net, welfare, disability, unemployment, child tax, old age, guaranteed income and other benefits, is income smoothing.  It is why these payments are made bi-weekly or monthly.  Telling households already struggling to meet their basic needs that they will have to pay more at the point of sale, but that in turn they may receive a larger annual lump-sum payment undermines this key objective.  As it stands many of these social benefit programs have already seen significant real cuts as they have not been indexed to the cost of living.  Also, Canada does not have a program like the Supplemental Nutrition Assistance Program (aka ‘food stamps’) in the U.S.  Low-income Canadian households who won’t be able to make their food budgets stretch a little further as a result of higher prices on food staples will end up either at food banks, at soup kitchens or malnourished.
And that’s assuming an HST rebate will fully compensate the increased food cost low-income households would be paying. The current GST rebate does not fully offset its cost to lower-income households nor has it had an effect on the redistribution of income.  While tax hikes intended to more equitably distribute income should be zero-sum, like all tax schemes the HST on food will be designed to offset implementation (admin, enforcement) costs and limit benefits so as to net the federal government income.
The argument that not taxing food adds to income disparity by needlessly subsidising the rich (high-income and/or wealth) is intellectually dishonest on at least two fronts. Basic food staples, which is what is at the heart of this argument since highly processed, prepared and restaurant meals are already taxed, comprise a much smaller proportion of rich households’ budgets. The relative disbenefit of this ‘subsidy’ to the rich is negligible when contrasted to the food affordability benefit to lower-income households. See Text table 2 – Average expenditures by income level, 2009 (PDF file) on food as percentage of total expenditure by quintile from SHS, Adjusted market, total and after-tax income, by adjusted income quintiles, annual from SLID.
If the objective is to offset an unfair subsidy to the rich through the federal tax-and-transfer system, the goal would be more easily and efficiently achieved by taxing premium luxury goods consumed by rich households and their estates inheritance. High-end luxury goods also have a low demand elasticity: a potential exotic car or luxury home buyer will unlikely reconsider their purchase decision because they have to pay an extra 5-10% tax. Likewise, an estate tax on the relatively few inheritances over say $1M would be more efficient, not to mention altruistic, than a tax that could affect relatively many low-income households’ food security.
In addition to championing the idea of taxing basic food items, Mr. Mintz is also known to expound the benefits of cutting federal corporate income tax (CIT) rates because they theoretically increase capital investment and create jobs. There is little real-world evidence to support the theory (see here). Mr. Mintz was asked if the objective of the continuous federal CIT rate cut (Excel file) was to increase capital investment and employment, whether it would not be more efficient to provide a ‘tax-cum-subsidy’ that would reward only those companies that invested and hired. This did not sit well with Mr. Mintz. While he looks favourably on giving low-income households an HST rebate after they have had to make sacrifices at the grocery store, he draws the line at rewarding rather profitable corporations with tax benefits after they have invested and hired in Canada. It is a rather peculiar double-standard. In any event, Mr. Mintz danced around the question by incoherently going on about capital flight in today’s more open international market system (given the amount of FDI going into Canada’s resource sector, one could argue capital controls would not be a bad idea).
To the point, the arguments in support of applying HST to basic food staples are as intellectually dishonest as those put forward in support of cutting taxes on profitable corporations.
To add to that, from the time I’ve spent volunteering at soup kitchens, many of the poorest remain outside the income tax system and don’t benefit from GST or other tax credits at all. Â That’s how I responded when I was called by iPolitics to comment on this proposal (without having seen it) as well as saying that if they want to broaden the tax basis and close some loopholes they should start with the stock option deduction. Â Sam’s analysis is much more cogent than mine was.
I’d be quite happy if Harper adopted this proposal: it would certainly increase the odds of getting rid of them in the next election.
Sam is one of the smarter ones that once worked at Statcan and has completed some great works on injustice, discrimination, labour and income. Good work Sam!
I do think it is worth mentioning that this also represents the transfer taxation from the corporate taxes and many of the other loop holes in the newer trickle down tax code, onto the backs of the middle class. That piled along with the obvious inefficienies that consumption taxes have on income smoothing, and the bias against those outside the system, truly are an upsetting outcome to the taxation regime and its great transformation under Harper. It will for sure get him thrown out of office, that one is the gift that keeps on giving to the ndp, but i would hate to see it as it will be quite painful.
Thanks for bringing this post (and the rest of Sam’s blog) to my attention. But I am tempted to suggest that GST be charged for post titles exceeding ten words!
🙂
A minor quibble: the GST/HST credit is not an “annual lump-sum payment.†It is paid out quarterly and could easily be paid out more frequently.
However, it’s true that even refundable credits do not help people who do not file tax returns.
Depends on what you do with the revenues. Applying the GST to food then rebating all of that money back to low-income households through an expanded GST would be strongly pro-poor.
Again here go, progressives just going on and on about how great such things as a consumption tax could be on food when they should be lambasting it. Do you guys have any notion of how these things work? DO you understand that a monthly GST is not easy to administer the transaction costs on these are fairly large as well as time consuming. Do you understand how poorly the current measurement of rebates work, i.e. we barely have any notion of family expenditures and the current standards are way below what should be used. Do you understand that an “expanded” GST would never happen under the current regime. It is one thing to nit pick on the sides but you guys need to get on the progressive side here and quit being so passive towards someultra regressive ideal! Come on Marc and Erin, you really think these arguments are legitimate, you should be all over these guys. Explain to me MArc how you get an expanded program out to people that do not register or submit taxes?? There is a large number of the most worse off in our society that do not have a stable address. And lets get into the whole debate about measuring expenditure and determining rebates, or again how do you get these things out to people that live paycheque to paycheque in a meaning full and non-intrusive way. Here is how you do it- do not tax food or other basic requirements. Strongly pro-poor, wow you are delusional Marc.
I know this is again a hold over on your all encompassing carbon tax model, but guess what Marc, that was a huge fail! Get over it. Sorry for getting testy but Marc I wish you would get over your fascination with consumption taxes. They are regressive- inherently! and in more than some marginal way that Erin mentions.
I agree with Paul. The same was true of the gains from trade debate. If if you buy that there are substantial gains from trade to be had, it is completely meaningless unless actual trade deals come with the mechanisms to compensate the losers. We entered NAFTA and then cut back UI and most provinces reduced welfare rates and tightened eligibility.
Given the current regime most of the revenue raised through extending the GST to food would probably get recycled into further CIT cuts. We know who does not vote in this country and it is by and large the very people the extension of the GST to food would hurt the most.
Seems to me the Nordics show how taxation can be done in a way that works for the economy, delivering public services and reducing poverty. I doubt you could get to 40-50% of GDP without increasing reliance on consumption taxes. The political choice to ignore poverty is the bigger problem here.
Marc, to compare Canada to Nordic countries is comparing apples to oranges. We do NOT have adequate social programs here, and people are fortunate to be able to cover both housing and groceries in the same month here. In Nordic countries, they have not heard of food banks, while we are pushing the poor more into relying on them. I found with the rise in food costs in the last few years, I have taken to eating perhaps once a day, because I cannot afford to make it stretch any more than that. To tax the foods means more money out of my pocket to fund corporate tax cuts which done nobody I know any benefit. What needs to be done is to return the tax system to a progressive tax system, where people who earn more pay more, and those at the bottom of the economic food chain get adequate benefits, so they never have to rely on food banks or do without.
“I doubt you could get to 40-50% of GDP without increasing reliance on consumption taxes. The political choice to ignore poverty is the bigger problem here.”
So are you arguing that if we tax them the welfare ethic will come?
Another important point about the Nordic countries is the huge percentage of workers who are unionized. Get us up to like 50% unionized workforce, sectoral bargaining, much flatter wage structure, and then we can talk about consumption taxes.
We are definitely a long way from the nordic model, when we get there potentially then we could talk xonsumption taxes on basic goods. It is pretty wierd company when progressive agrees with jack mintz that consumption taxes on food are a positive factor for the poor. Your inability to comprehend the reality of policy practicality will keep you stuck in the theory world, maybe you belong in academia, instead of policy alternatives. You should think about that Marc, before the newspapers start quoting you that consumption taxes are good for the poor, right alongside mr. Mintz.
Never said any of that. To recap, here is what I did say. First, a qualification, “Depends on what you do with the revenues. Applying the GST to food then rebating all of that money back to low-income households through an expanded GST would be strongly pro-poor.”
Second, in response to Paul’s righteous indignation, “Seems to me the Nordics show how taxation can be done in a way that works for the economy, delivering public services and reducing poverty. I doubt you could get to 40-50% of GDP without increasing reliance on consumption taxes. The political choice to ignore poverty is the bigger problem here.”
Why do you so get off distorting what I said, laying on the righteousness and being generally insulting? That tendency to snidely rant turns people off from making comments and weakens the blog’s ability to host informed and respectful debate.
Whatever marc, what then did you say above Marc? Did you not say that consumption taxes are pro poverty? that is what i read, so if i am upset for erroneous reasons then i apologize, but sorry i have to call you on this one, and when the headline of the torstar is pretty much the same thing that is inferred by mintz then how did i distort it. And trust me i don’t get off on this it makes me sick to hear a progressive being that loose with their thoughts, especially when you are charged with the responsibility of alternative policy-practically. So your accusations against me are baseless, and if you cannot come on here and defend yourself then don’t a make such huge leaps thaat you know are so against progressive thoughts. Go on another site asuch as worthwhile whatever gordon’s site. I defend my statement, and yes i am wrong fir getting personal, and I apologize, but don’t start shitting on me for you misguided comments, i am not the one that agrees with mintz, and i am nit the one that needs to defend their statements, and i am not the one that is tasked to publically represent progressives.
I think with such blatant comments against me, and now deemed as a rant, I think I will take a break from posting on this site. At least until you make yourself clear Marc, because I cannot participate in a site that deviates in such a manner from reality. You blatantly agreed that consumption taxes are pro poverty, and yes even with the revenue qualifications, they still are regressive, i.e. the many points commentators and myself made. And then say two paragraphs down that I am an idiot and misinterpreted you and I am just a righteous idiot (which I undoubtedly am for spending as much time on this site as I do and to have this as thanks after 4 phracking years of comments)
I think it will be a long time before I make another comment on this site, you are on your own, as this righteousness guy has had his fill of being on the sidelines.
LAter
Mental note MArc, you earn respect I don’t give it freely.
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