Photo: iStock / Khanchit Khirisutchalual
Canada Plans to Comp Citizens For Inflated Grocery Costs
Inflation may be slowing globally, but customers are still getting hit hard by high prices on the grocery shelves. Canada plans to build relief for consumers into its 2023 budget in the form of a one-time payment to low- and middle-income Canadians.
Canada’s Budget 2023 proposes a payment of up to $467 for couples with children, up to $234 for single Canadians with no children and an average of $225 for seniors, delivered through the country’s Goods and Services Tax Credit (GST Credit) system. The inflation relief would total $2.5 billion and be paid out immediately after the passage of the legislation.
Inflated grocery prices have become a hot-button issue in Canada. A recent survey by the Toronto Star found that a growing number of Canadians—around 30 percent at present—believe that grocers are price gouging.
The survey, by Agri-Food Analytics Lab at Dalhousie University, came after an inquiry by the Canadian parliament into the pricing practices of major grocers during the recent inflationary period. The heads of major grocery chains, who spoke at the hearing, failed to convince three-quarters of Canadians that they were being transparent about pricing practices.
Recent studies have shown inflation in the U.S. slowing but remaining high, as seen in a March report from Trading Economics. The study found that the rate of grocery price inflation in February dropped from 10.1 percent but grew at an annual rate of 9.5 percent.
Callie Cox, U.S. investment analyst at eToro, pointed to demand, rather than supply chain disruptions or goods prices, as the current leading cause of inflation in a Business Insider article last month.
Measures to relieve inflation-strapped grocery shoppers in the U.S. have thus far not been as direct as the Canadian government is proposing. Thirteen U.S. states last year paused the collection of grocery taxes as prices rose, although tax experts questioned the efficacy of these measures.
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Making Life More Affordable and Supporting the Middle Class – Government of Canada
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Growing number of Canadians believe big grocery chains are profiteering from food inflation, survey finds – Toronto Star
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United States Inflation Rate – Trading Economics
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What causes inflation? - Business Insider
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States pause grocery taxes as a hedge against inflation – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: What do you think of Canada’s plan to pay low- and middle-income consumers to buy groceries? Do you expect similar measures to be enacted in the U.S. on the state or federal level?
Poll
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Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Kevin Graff
President, Graff Retail
It’s understandable that politicians are looking for ways to minimize the impact of inflation for constituents, but this could actually cause inflation to get worse. In Canada, some see this move as a purely political move with the incumbent Liberal government looking to win favor with voters. While Canada and the U.S. appear similar in many ways, this is a good example of the differences. I don’t expect the U.S. government to implement similar measures.
Isn’t the necessary transparency sitting right in clear view on the grocer’s income statement? It certainly was in the case of the oil refineries in the U.S. A profit surge as a result of cost cutting is obvious. A profit surge because of robust margins is obvious. Yes, low income households need support, but price gouging can be called out and dealt with at the same time. Maybe a one-time tax on proven price gougers to pay for the one-time payment to those in need?
There are no easy answers here. Many people are struggling to put food on the table, and no one can predict when (or if) we will see prices return to prices closer to levels that existed prior to this recent period. I do support the idea of helping people in a time of need, hoping that a rising tide lifts all boats, but a small one-time payment does nothing to address the systemic challenges facing grocery, from supply chain disruptions to supplier and/or retailer price gouging, and everything in between. We certainly have the capacity to do both, but rarely do we address the hard stuff. We simply look for the biggest political bang and kick the proverbial can down the road on the hard things that may or may not curry attention–and votes.
Cheers from the Great White North (Canada), home of the government that just proposed a budget with a $40 billion deficit. Make no mistake, our approach up here is to try to “take care” of people (whether they want/need it), or make it look like that anyway.
This government subsidy works out to $10 per week for your groceries. Not much obviously. So see it for what it is. A vote buying initiative on the part of the current government.
Nothing to see here folks — just the usual political nonsense.
This is a slippery slope. As Mark Ryski has pointed out astutely, this could really backfire and cause the problem to worsen. People are struggling, no question. Will tax rebates solve this? Not likely. Will price controls do it? The evidence also suggests that it makes the problem worse. There is no easy answer here. Perhaps forcing more transparency in pricing? Subsidizing transportation costs? Are there competitive collusion issues at play here? It would help to understand better where costs are and how the margins have changed in the last few years. At least that would give federal and provincial governments a place to focus.
The retailer has a choice in inflationary times to hold absolute margins (dollars and cents) or to hold margin percent. I know of no retailer who doesn’t choose margin percent, then round it up to the next price point. Is that gouging, or is it just the way business is done? That is why, despite what they say, retailers like inflation.
But retailers are not the only ones that benefit from inflation. The government also does. As prices and wages increase, so does government revenue. Taxes are based on percentages, and the same rate of a higher number generates more revenue.
Ok, so let’s give some back, says the government, until wages catch up with inflation because prices will never, and have never, returned to what they were in pre-inflationary times.
Politicians love to buy votes with taxpayers money and what better way than to “give” money to consumers when, in reality, this policy will increase inflation even more. I guess Canada doesn’t pay attention to the U.S. economy and its self-induced inflationary actions. Canadian politicians would be wise to look at policies that get at the core issues. A smart start would be to take a hard look at taxes, wages, international trade agreements, labor laws, bureaucratic regulations, etc.
Well, they aren’t really doing much compensating, as Kevin Graff points out, and if the retailers are taking advantage the government isn’t helping there. So, don’t think much about this plan.
One of the key learnings from a lifelong career in retailing has been to focus on the “root cause” when seeking to address a large-scale issue.
This action does nothing to address the root causes of inflation and thus is just a Band-Aid and not a solution. Supply chain issues and price gouging appear to be at the root of the issue.
Is a retailer holding the product margin percent in inflationary times and therefore making more money price gouging or just doing business?
With all due respect to the editors here, the headline – and even the questions – seem to be a little clickbaity and (if I understand the plan correctly) not entirely accurate: a tax credit isn’t quite the same as “paying people”; and in fact, tho almost all of us voted “no” (on states here doing the same) a number of states already have (at least as regards gas taxes).
Back to Canada’s plan: my question is how do they make up for the revenue lost from the GST diversion ?? If they simply raise other taxes, cut spending or print more money, then it may well be a futile gesture.
It might have a short-term benefit, but it will have a long-term negative impact. Wouldn’t it be better to find ways to reduce inflation on products on the shelf?