The federal government's GST holiday would cost as much as $2.7 billion if provinces with a harmonized sales tax asked for compensation, the parliamentary budget officer said on Monday.
But the decision from some provinces with an HST not to demand compensation for their portion of lost revenue lessens the cost on Ottawa significantly.
The Liberal government intends to lift the federal sales tax on a slew of items between Dec. 14 and Feb. 15, saying it's aimed at helping people struggling with affordability.
All Canadians will save at least the five per cent goods and services tax on purchases like children's clothing, video games and restaurant meals.
But in Ontario and the Atlantic provinces, the provincial and federal sales taxes are blended together into a harmonized sales tax, which means people in those jurisdictions will get a larger break of between 13 and 15 per cent.
The PBO estimates the tax break will cost the federal government $1.5 billion, in line with the Liberals' own estimate of $1.6 billion.
However, the budget watchdog notes that if provinces with a harmonized sales tax don't waive the compensation requirement in their agreements with Ottawa, it would cost $2.7 billion.
Ontario, which stands to lose the most HST revenue, says it will not seek compensation from Ottawa.
Colin Blachar, a spokesman for Ontario Finance Minister Peter Bethlenfalvy, says the move will provide "nearly $1 billion in additional relief for Ontario families."
A spokeswoman for Finance Minister Chrystia Freeland encouraged all provinces to waive their sales tax following the PBO report.
"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," said Katherine Cuplinskas in a statement.
Saskatchewan Premier Scott Moe has said his province would not match Ottawa's GST holiday.
He said some of the provincial sales tax goes toward municipalities and that his government has implemented other measures to reduce costs, including reducing personal income taxes and removing the carbon levy from home heating.
