The con

A few days after the feds announced a GST holiday plus cheques for the masses, the enormity of this mistake is coming to light.

The burning question: are citizens so dumb they believe this is a good thing?

So far, that’s a big 10-4. They do. It’s amazing the effect slightly-cheaper diapers will have on a parent’s brain.

Meanwhile economists are apoplectic and business guys are losing their lunch as we sit a scant three weeks away from the mother of all recent tax changes – to take effect one day before the biggest mortgage adjustment in a generation. Woo-hoo.

Refkect on the comments below. They’re from a blog reader who happens to be president of a well-known national speciality food giant. “These are the implications of this GST holiday on certain protects as seen from the top of a Canadian retailer,” he says.

Conversations from within our organization today:

– why is the government doing this to us right in the middle of our busiest holiday period with 3 weeks notice?  Thank you, Justin.

– It’s not as simple as flipping a switch and GST isn’t charged.   There are regional differences and digital sales channel differences.  If a customer orders a product on Dec 13th but it isn’t delivered until Dec 16th (overlapping the Dec 14th activation date) then did the sale happen when it was ordered or when it was delivered?   Accounting rules say it didn’t happen until goods were exchanged which would be delivery date.   Good luck trying to re-engineer your e-commerce businesses and platforms to figure out exactly when delivery will happen when a customer clicks “buy”.   Same goes for when this ends in the spring.  No GST charged on the order when it’s placed… but should have been if delivered after Feb 15th.

– how many customers will buy something between now and Dec 13th only to come back after Dec 14th and ask for an exchange or refund?    And for goods, such as food products or candies or perishables that cannot be resold when returned, what is a business to do but give that customer a refund?   That is basically just a discount that businesses will have to incur to keep customers happy (because, again, they won’t understand the technicality of CRA GST laws).

– we now have to spend countless hours (did I mention this is a busy time of year for retailers?) drafting policies and training customer facing staff on what to say when X situation happens or a customer comes in asking about this.   We do this instead of what we should be doing – selling.

– retailers, many of whom bank on Black Friday as a big start to their season, are now wondering if shoppers are going to come or if they will wait.    What do we do with inventory allocations and volume forecasts between now and Christmas?   Do we assume they will all come back after Dec 15th?

It is remarkable to me how much praise this is getting when it is such an obvious vote-buying move.   We have a business productivity issue in this country and this government does not consult industry or give consideration to what implications on productivity their proclamations do.   And don’t get me started on front of package labelling…

Now multiply these issues across an entire economy struggling with productivity, stressed supply chains, gnarly consumers and red-tape overkill. How many small business cash reporting systems and platforms will have to be reprogrammed for a two-month period? After all, the tax break is not across-the-board. It’s targeted. It’s temporary. And it’s mingled with provincial retail tax. Quelle mess!

But wait. This is just the tip of the crass, ill-conceived, unaffordable and moronic iceberg. The real damage comes a little later. Because – with an election in 2025 – this tax break may well become permanent (or at least until the vote).

First, the cost. It’s ridiculous. The sales tax revenue loss over two months is $3.5 billion. The cheques for $250 to be mailed out to nineteen million people in April will cost $4.5 billion. So, the cost of these two flip ideas is $8 billion. Which we don’t have.

(By the way, Doug Ford in Ontario is doing the same. Everybody gets two hundred bucks in January, at a cost of $3 billion.)

Second, this largesse comes just as the mortgage rules change – you know, the 30-year loans, the higher CMHC cap and the big plop in downpayments. The idea is to drop the cash required to buy and increase the debt, the equivalency of a 1% reduction in mortgage rates. More demand. More economic stimulus.

Add in a $2.5 billion carbon tax rebate being sent out by the feds next month and, says Scotiabank, “The sum total of the dollar amounts for these initiatives that have been announced thus far is pushing toward about $14 billion plus the effects of the easier mortgage rules.’

So what?

Lots. All this stimulus will mean the Bank of Canada cuts interest rates less next year. Meanwhile – because we don’t actually have this money – the deficit gets bigger. By $6 billion in a year. If the tax holiday is extended, the shortfall will grow by $14 billion. “Over a five-year projection horizon, the cumulative deficit would ballon by about an extra $52 billion,” says the bank. And the provinces would also see a fat revenue loss.

The bottom line involves steeper long-term interest rates, less affordable homes and higher levels of taxation.

Cheap Huggies ain’t worth it. This is a con.

About the picture: “Winter is back, and it reminds me of a couple of years ago when we went dogsledding in Haliburton, ON,” writes Juve. “Here’s a picture of my nephew from overseas, getting his first taste of a Canadian winter. Dogsledding is an absolute riot! I swear, there’s nothing more joyous and full of life than a Husky bounding down a snowy trail. Cheers, and thank you for all you do!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.