Freeland says the two-month GST holiday is meant to tackle the ‘vibecession’

OTTAWA — The federal government is hoping a temporary break on GST will address a “vibecession” that has gripped Canadians, Finance Minister Chrystia Freeland said Monday.

Prime Minister Justin Trudeau announced last week that starting Dec. 14 the goods and services tax will be taken off a slew of items for two months to help with the affordability crunch.

In a news conference on Monday, Freeland said there’s a disconnect between recent good news on inflation and interest rates and how Canadians are feeling about the economy, something she said is being referred to as a “vibecession.”

The tax cut is meant to help bridge that gap and stimulate consumer spending, she said.

“One of the positive impacts of this measure is to help Canadians get past that vibecession because how Canadians feel really does have a real economic impact,” Freeland said.

The tax break will apply to a number of items including children’s clothing and shoes, toys, diapers, restaurant meals and beer and wine.

It also applies to Christmas trees — both natural and artificial — along with a variety of snack foods and beverages, and video game consoles.

The federal government also plans to send $250 cheques in the spring to Canadians who were working in 2023 and earned up to $150,000. Those who weren’t working last year, including retirees and Canadians on social assistance, will not receive cheques, fuelling criticism from opposition parties.

Bloc Québécois Leader Yves-François Blanchet said on Monday that his party would only support the rebate cheques if the draft legislation is expanded to include seniors. NDP Leader Jagmeet Singh also wants the rebate cheques to be expanded to include retirees, people receiving disability assistance and students.

Trudeau acknowledged last week that even though inflation is down and interest rates are falling, Canadians are still feeling the bite from higher prices. And while the government can’t help with prices at the checkout counter, it said it can put more money in people’s pockets.

The GST break and cash gifts are estimated to cost the federal government $6.3 billion.

Many economists have been critical of the measures, arguing there are better ways to use that money to help stimulate economic growth and productivity.

Procurement Minister Jean-Yves Duclos, who was an economics professor at Laval University before running for federal office, addressed those critiques on Monday by pointing out that the measures are only temporary.

“We need to distinguish between structural and temporary measures. This is a temporary measure which acknowledges that despite all of the wonderful economic news that my colleagues, economists are correct to spread, the average Canadian, doesn’t yet feel that good news,” Duclos said.

BMO, which upgrades its economic growth forecast due to these measures, estimates the stimulus amounts to 0.3 per cent of GDP.

“That is hefty. But, it will do little to change economic behaviour, or even touch the aforementioned issues of productivity and affordability in comparison to, say, something like permanent income tax reductions,” wrote BMO senior economist Robert Kavcic in a report.

“In fact, when set against an incoming U.S. administration that is gearing up for a significant pro-growth policy push, it seems like energy would be better spent on measures with a more lasting impact.”

This report by The Canadian Press was first published Nov. 25, 2024.

– With files from David Baxter.

Nojoud Al Mallees, The Canadian Press