GST rebate hike makes sense but permanent fix needed to combat inflation: economists

The federal government officially announced on Tuesday it will double the GST rebate for six months to help lower-income Canadians facing a rising cost of living.

The federal government’s newly announced inflation relief for lower-income Canadians through the GST rebate stacks up as a better policy than some of the cash payments issued by provinces, economists say.

After months of mounting political pressure from the NDP to help low- and modest-income Canadians facing a rising cost of living, the federal government officially announced on Tuesday it will double the GST rebate for six months.

Prime Minister Justin Trudeau also announced the federal government will expand eligibility for the one-time top-up of $500 for the Canada Housing Benefit available to renters.

Both were among a slate of measures the government intended to reveal last week, but the announcement was delayed after the death of Queen Elizabeth II.

Michael Smart, an economics professor at the University of Toronto and the co-director of the Finances of the Nation project, said it makes sense to boost the GST rebate to reflect inflation.

“If we promised people in the past that we’re going to give them some support, that amount that we promise should be inflation-adjusted,” Smart said.

The federal government indexes benefits to inflation, but because of a lag in how that is calculated, benefits in 2022 will rise by 2.4 per cent, well below the current inflation rate. In July, the year-over-year inflation rate was 7.6 per cent.

This one-time adjustment provides a temporary fix, Smart said, but a permanent change in how indexation is calculated is necessary.