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By Gates Guarin

GST rebates not a long-term solution to fight inflation, economist says

Sep 15, 2022 | 4:04 PM

MEDICINE HAT, AB – The federal government announced additional supports to help curb high inflation earlier this week.

Prime Minister Justin Trudeau introduced a $4.5 billion affordability plan, which includes a dental benefit for some children, and a one-time top up of the Canada Housing Benefit for renting families with a net income of less than $35,000.

A boost in GST rebates is also included in the federal government’s plan, which would see the rebates double for the next six months for low-income earners. The extra rebates would affect approximately 11 million households across Canada, and would equate to an extra $234 for single Canadians, or $467 for couples with two children.

Dillon Batsel, an economics and finance instructor at Medicine Hat College, says he believes the decision was made to help bolster low-income earners to aid in paying for basic needs, such as food and rent.

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Batsel says even though the federal government’s plan is targeting the right income bracket, it is not a viable long-term solution.

So when we look at the causes of inflation, there’s usually a demand side of it and a supply side,” Batsel explains. “Sending out transfer payments to people wouldn’t have any effect on the supply side.”

“Gasoline prices going down, food prices going down, shelter prices going down, those are all supply side causes that would make inflation go higher. Sending more money out through transfer payments would help Canadians, but it’s not going to help fight inflation,” says Batsel.

Batsel says he believes Canada is on the upper end of inflation and hopes to see the rate go down in the coming months when the demand for goods like gasoline is not as high. Batsel adds commodities like gasoline are important indicators when forecasting inflation rates.