Provinces with HST may demand compensation under existing tax agreements
The temporary goods and services tax (GST) holiday could leave the federal government footing a much larger bill if provinces with harmonized sales tax (HST) demand compensation. The Parliamentary Budget Officer (PBO) has warned the initiative could cost up to $2.7 billion under such circumstances.
From December 14 to February 15, the Liberal government’s tax break will remove the 5% federal GST from purchases like children’s clothing, video games, and restaurant meals. In provinces with HST—where federal and provincial sales taxes are combined—the measure would result in a larger discount of 13% to 15%
According to the PBO, the measure is expected to cost the federal government $1.5 billion if no compensation is requested, a figure closely aligned with the government’s estimate of $1.6 billion. However, if provinces with HST exercise their right to compensation, the cost could rise significantly.
Ontario, the province most affected by the tax break, has confirmed it will not seek compensation. Colin Blachar, a spokesperson for Ontario Finance Minister Peter Bethlenfalvy, said the move would provide “nearly $1 billion in additional relief for Ontario families.”
Finance Minister Chrystia Freeland’s office has urged other provinces to follow Ontario’s example: “We hope all provinces will join us and provide their share of tax relief for their residents over the holidays, as Ontario, P.E.I., and Newfoundland and Labrador have done. This tax break will help all Canadians in every province.”
