Why taxing food staples should not be considered a policy option in Canada
Low-income households canâ€™t buy food today with a larger HST rebate they hope to get sometime in the future. Â A key objective of the social safety net, welfare, disability, unemployment, child tax, old age, guaranteed income and other benefits, is income smoothing. Â It is why these payments are made bi-weekly or monthly. Â Telling households already struggling to meet their basic needs that they will have to pay more at the point of sale, but that in turn they may receive a larger annual lump-sum payment undermines this key objective. Â As it stands many of these social benefit programs have already seen significant real cuts as they have not been indexed to the cost of living. Â Also, Canada does not have a program like theÂ Supplemental Nutrition Assistance ProgramÂ (aka â€˜food stampsâ€™) in the U.S. Â Low-income Canadian households who wonâ€™t be able to make their food budgets stretch a little further as a result of higher prices on food staples will end up either at food banks, at soup kitchens or malnourished.
And thatâ€™s assuming an HST rebate will fully compensate the increased food cost low-income households would be paying. The current GST rebate does not fully offset its cost to lower-income households nor has it had anÂ effect on the redistribution of income. Â While tax hikes intended to more equitably distribute income should be zero-sum, like all tax schemes the HST on food will be designed to offset implementation (admin, enforcement) costs and limit benefits so as to net the federal government income.
The argument that not taxing food adds to income disparity by needlessly subsidising the rich (high-income and/or wealth) is intellectually dishonest on at least two fronts. Basic food staples, which is what is at the heart of this argument since highly processed, prepared and restaurant meals are already taxed, comprise a much smaller proportion of rich householdsâ€™ budgets. The relative disbenefit of this â€˜subsidyâ€™ to the rich is negligible when contrasted to the food affordability benefit to lower-income households. SeeÂ Text table 2 â€“ Average expenditures by income level, 2009 (PDF file)Â on food as percentage of total expenditure by quintile from SHS,Â Adjusted market, total and after-tax income, by adjusted income quintiles, annualÂ from SLID.
If the objective is to offset an unfair subsidy to the rich through the federal tax-and-transfer system, the goal would be more easily and efficiently achieved by taxing premium luxury goods consumed by rich households and their estates inheritance. High-end luxury goods also have a low demand elasticity: a potential exotic car or luxury home buyer will unlikely reconsider their purchase decision because they have to pay an extra 5-10% tax. Likewise, an estate tax on the relatively few inheritances over say $1M would be more efficient, not to mention altruistic, than a tax that could affect relatively many low-income householdsâ€™ food security.
In addition to championing the idea of taxing basic food items, Mr. Mintz is also known to expound the benefits of cutting federal corporate income tax (CIT) rates because they theoretically increase capital investment and create jobs. There is little real-world evidence to support the theory (seeÂ here). Mr. Mintz was asked if the objective of theÂ continuous federal CIT rate cutÂ (Excel file) was to increase capital investment and employment, whether it would not be more efficient to provide a â€˜tax-cum-subsidyâ€™ that would reward only those companies that invested and hired. This did not sit well with Mr. Mintz. While he looks favourably on giving low-income households an HST rebate after they have had to make sacrifices at the grocery store, he draws the line at rewardingÂ rather profitable corporationsÂ with tax benefits after they have invested and hired in Canada. It is a rather peculiar double-standard. In any event, Mr. Mintz danced around the question by incoherently going on about capital flight in todayâ€™s more open international market system (given the amount of FDI going into Canadaâ€™s resource sector, one could argue capital controls would not be a bad idea).
To the point, the arguments in support of applying HST to basic food staples are as intellectually dishonest as those put forward in support of cutting taxes on profitable corporations.
To add to that, from the time I’ve spent volunteering at soup kitchens, many of the poorest remain outside the income tax system and don’t benefit from GST or other tax credits at all. Â That’s how I responded when I was called by iPolitics to comment on this proposal (without having seen it) as well as saying that if they want to broaden the tax basis and close some loopholes they should start with the stock option deduction. Â Sam’s analysis is much more cogent than mine was.
I’d be quite happy if Harper adopted this proposal: it would certainly increase the odds of getting rid of them in the next election.