Montreal, March 18, 2020 – Canada’s federal government announced measures this morning totalling nearly $30 billion in order to stimulate the Canadian economy. While fast, targeted action is required to help Canadians struggling due to the economic slowdown to meet their needs, MEI researchers nonetheless believe that other options should be considered.
“Certain measures seem better suited to a rapid, targeted, temporary response. Among these are a tax holiday for federal and provincial sales taxes, as Japan is considering at the moment,” adds Luc Vallée, Chief Operating Officer & Chief Economist at the MEI.
“No one is questioning the urgency of acting to help vulnerable workers and businesses that are suffering. Yet the constant increase in federal spending in recent years casts doubt on the government’s ability to readjust down the road. The idea is to stimulate in a way that’s fast, targeted, and keeps our economic powder dry for the future,” argues Peter St. Onge.
Three targeted solutions
As such, the two MEI researchers propose three concrete public policies:
- A tax holiday for payroll taxes (Canada Pension Plan, provincial plans, Employment Insurance, etc.): These taxes represent 15% of the salary of an employee, who pays around half, with the employer paying the rest. A tax holiday would put money back in workers’ pockets and, by reducing the cost of labour, make it easier for companies to keep workers on amid falling sales.
- An exemption from the property tax for small businesses: This would on the one hand reduce fixed costs, and on the other hand help mitigate the lack of liquidity that could make certain businesses vulnerable.
- A tax holiday for federal and provincial sales taxes: Stimulating consumption would be especially beneficial for local businesses. And, contrary to direct payments to taxpayers, which tend to be converted into savings, this measure would encourage customers to spend on goods and services.
“Each of these measures target the workers and businesses most at risk, all while encouraging economic growth, which will mitigate future deficits. This economic slowdown is different from previous slowdowns, and the response deserves to be specifically tailored to this unique situation,” concludes Luc Vallée.
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