Recently-announced government stimulus measures aren’t ideal, but should boost economic growth in the next couple of quarters, economists from Desjardins Group Inc. said on Monday.<\/p>\n
In a new report, the firm examined the projected impact of the GST holiday and tax-free rebates unveiled by the federal government last week, which it said, “will be welcomed by many Canadian households struggling with the high cost of goods, services and borrowing.”<\/p>\n
The impact of these measures on the broader economy will vary, it said.<\/p>\n
To start, the GST holiday, which represents $1.6 billion worth of tax relief, could add 0.3 percentage points to fourth quarter GDP growth, it said. Desjardins noted that while much of the extra cash will be spent, higher-income households will be more likely to save the money.<\/p>\n
The tax-free $250 rebate in the second quarter of 2025 for all workers, up to an individual net income of $150,000, should provide a boost too.<\/p>\n
“Given this measure is more targeted … the uplift to consumption is likely to be larger on a dollar-for-dollar basis as less will be saved,” it said. “Nationally, this could translate into a boost of one [percentage point] to annualized real GDP growth in Q2 2025, but subtract 0.4 points in each of the subsequent two quarters.”<\/p>\n
In Ontario, the provincial government has also pledged to pay a universal $200 rebate in the first quarter of 2025, which is forecast to add 0.8 points to annualized real GDP growth in Q1, but to subtract 0.4 points in the next two quarters, “as the short-term boost to growth fades.”<\/p>\n
“Putting this all together, real consumption and GDP growth could be much higher in the final quarter of 2024 and the first half of 2025 than projected,” in Desjardins’ previous forecast, the report said.<\/p>\n
For 2025 overall, this could add 0.2 points to annual real GDP growth, it said, although it will bolster inflation too.<\/p>\n
“With more money chasing a similar amount of goods and services, companies will be able to pass some of their still-high costs on to consumers,” it said. “That will offset some of the impact on growth by making the planned fiscal largesse not go as far as it might otherwise.”<\/p>\n
However, the impact on inflation isn’t expected to be significant enough to alter the path of monetary policy, the report said.<\/p>\n
“[T]he central bank will likely look through the impact of these temporary measures,” it said, although, “they certainly don\u2019t help make the case for rates to fall faster.”<\/p>\n
At the same time, these measures will represent a drag on the federal government’s finances, it noted.<\/p>\n
“The economic soundness of these measures is questionable,” the report concluded.<\/p>\n
“While many Canadians are struggling financially, these new measures lack the targeted approach of previous initiatives … A more focused approach, directing funds to Canadians with a higher propensity to spend would have generated a larger boost, and would have genuinely supported struggling households,” it said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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