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 on Thursday 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."
Good news—the Canada Carbon Rebate for Small Businesses is arriving early!
— Chrystia Freeland (@cafreeland) November 25, 2024
Starting today, this support is on its way to your business’ bank account.
The finance minister said the tax cut is meant to help bridge that gap and stimulate consumer spending.
"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 federal government also plans to send $250 cheques in the spring to Canadians who were working in 2023 and earned up to $150,000.
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 check out 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.
BMO 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."
