Expanding the GST/HST credit into a Groceries and Essentials Benefit would be a lifeline for low-income Canadians as pressures mount.
by Gillian Petit, Shaimaa Yassin. Originally published on Policy Options
February 22, 2025
(Version française disponible ici)
Lower-income Canadian households will almost certainly bear the brunt of price increases destined to come from the trade war beginning with the U.S. They could also take another financial hit if the Canada carbon rebate is eliminated, a real possibility once the next government takes power.
Ottawa should address gaps in income support as it considers measures to offset the impact of broad tariffs that could come in March. Tariffs on steel and aluminum are set to kick in on March 12, and U.S. President Donald Trump just unveiled his plan for reciprocal tariffs.
Life is very likely about to get more expensive. Now more than ever, a groceries and essentials benefit should be created to help low-income households weather the challenges that lay ahead.
We have been advocating for this benefit, an expanded GST/HST credit targeted to low-income working-age adults and their children, as a means of reducing poverty and food insecurity.
Policy brief | Groceries and Essentials Benefit
Making life truly affordable requires more than lowering inflation
What’s the true cost of food when you’re poor?
A grocer’s code of conduct isn’t a silver bullet. The right to food comes first
The federal government could deliver direct, meaningful support to those most vulnerable, including the unemployed or underemployed, by expanding and restructuring the GST/HST credit — an income-tested program with wide reach and easy accessibility. Its targeted design ensures resources reach those who need them most, and it would be simple to implement and adapt.
A benefit for groceries and essentials could also offer scalable, permanent relief from affordability pressures. In a time of rising inequality and economic uncertainty, it’s a long-term investment in closing the income gap and supporting the vulnerable.
Affordability challenges could worsen
Lower-income Canadians already face significant challenges in affording food, housing, clothing and other essential items. In 2023, households in the lowest-income quintile spent 69 per cent of their disposable income on groceries and housing (including water, electricity and gas). For those in the highest quintile, it was just 21 per cent.
Many lower-income households carry debt. The average debt of households in the lowest-income quintile was $30,984 in 2023. Households in the top-income quintile had average savings of $68,660 (figure 1).
Uncertainty around U.S. tariffs has already affected the Canadian dollar. It dropped to 67 U.S. cents in early February, near its lowest level since 2003, before rebounding to around 71 cents.
Economists predict the tariffs and a weaker Canadian dollar will increase inflation and unemployment. For lower-income households, which already spend a disproportionate share of their income on essentials, even a small price increase could push them further into debt.
Carbon-rebate gains would be lost
The Conservative Party and the frontrunners for the leadership of the Liberal Party, Chrystia Freeland and Mark Carney, have all pledged to abolish the carbon tax if elected. If it goes, the carbon rebate would go with it.
The loss would be most significant for lower-income households because that rebate is a net financial gain for most of them. They receive the same rebate as everyone else but they spend less on goods and services that contribute to carbon emissions such as gasoline and heating.
Carbon pricing — such as the federal fuel charge — has come under scrutiny for its role in the rising cost of living. However, a recent study shows that its impact has been minimal, accounting for less than 0.5 per cent of price increases since 2019, a small fraction of the 19 per cent rise in consumer prices over the same period.
Even if the fuel charge is eliminated, any resulting price declines are likely to be small, short-lived and dependent on corporations passing savings on to consumers.
The carbon rebate, though, would be an estimated gain of $580 a year by 2030 for households in the bottom income quintile (bottom 20 per cent) when the tax and rebate would be at their highest. That estimate accounts for direct and indirect costs of the tax (higher prices at the pump and for groceries, for example).
Those in the second quintile could expect an average gain of $260 a year.
Higher-income households would likely benefit modestly if the fuel charge is eliminated. They spend more on carbon-intensive goods, which could get cheaper if businesses pass on their savings.
Getting relief right
It is crucial to ensure that any stimulus aid package is effective and well-targeted. In terms of income support, recent approaches and proposals have fallen short.
The two-month GST holiday, which just ended, provided minimal relief to low-income households while benefiting higher-income earners.
The lowest-income households could expect to save just $24 worth of GST (paying $164 rather than $188 over the two months), according to simulations we did in December. That represents a 14-per-cent saving. Highest-income households were expected to save $130 (paying $583 rather than $713, an 18.5-per-cent reduction). They stood to benefit more because they spend more.
Recent inflation data also reflect the limited impact of the GST holiday on easing cost-of-living pressures.
Additionally, the GST holiday covered items that the federal government called “holiday essentials,” such as prepared foods, restaurant meals, alcohol and gifts — many of which lower-income households are less likely to buy. Necessities like groceries are already GST-exempt.
Why the carbon tax often costs more in Atlantic Canada
Carbon pricing is not to blame for Canada’s affordability challenges
Governments need to better reflect affordability concerns in climate policies
Instead of another broad, inefficient measure, the federal government should enhance existing programs like the GST/HST credit, which is based on income. It reaches households most likely to be affected by rising costs and provides them with the highest possible benefit.
A targeted top-up such as a groceries and essentials benefit recommended by the Affordability Action Council could further ensure that families facing affordability challenges receive more adequate support for essential needs.
This benefit would provide $1,800 a year per adult and $600 per child. It would be monthly, not quarterly, to give recipients more stability to pay bills. Households receiving the GST/HST rebate would get more money, but the lowest-income households would see the largest increase.
The challenges Canada faces will disproportionately impact lower-income Canadians, worsening affordability crises in food, housing and other basic needs. As policymakers consider responses to the fallout from the developing trade war and other cost-of-living pressures, they should prioritize well-targeted solutions that provide direct relief to those most in need.
Subscribe to our newsletter.
This article first appeared on Policy Options and is republished here under a Creative Commons license.