As the GST/HST holiday approaches its conclusion on February 15, Moneris, has released new data offering insights into consumer spending patterns during the first month of the tax break. The analysis, covering December 14, 2024, to January 15, 2025, compared with the same period a year earlier, reveals that the holiday did not significantly stimulate consumer spending.
According to Moneris, overall spending across Canada declined by 4% year-over-year, with transaction counts dropping by 1%. This slight reduction in consumer activity suggests that even the potential savings from the tax holiday were insufficient to encourage Canadians to shop more frequently or spend more per transaction.
Sean McCormick, Director of Business Development – Data Services and LAKA Sales Leadership at Moneris, noted, “While the tax break aimed to spur spending, Moneris’ data shows it may have unintentionally slowed it down. With a 3% decline in overall transaction sizes year-over-year, the data suggests that the break may not have had its anticipated effect.”
Regional Variations Highlight Mixed Impact
Provincial comparisons reveal further nuances. Ontario, one of the few provinces to match the federal tax holiday, experienced a 3% decrease in transaction counts and a 5% drop in transaction sizes. Atlantic Canada remained stable with no change in transaction counts but failed to show any notable growth.
In Western Canada, British Columbia saw a 2% decline in transaction sizes, while Alberta and Saskatchewan experienced modest decreases in transaction counts, ranging from 1% to 3%. Interestingly, Saskatchewan stood out as the only province to report an increase in transaction size, rising by 4%, suggesting that local factors may have influenced spending behaviour.
“While most regions saw declines—such as Ontario’s 5% drop—Saskatchewan’s 4% growth stands out, suggesting there’s more to uncover about what drives spending at the provincial level,” McCormick added.
Retail Categories See Mixed Results
Although the tax holiday did not result in a broad spending surge, certain retail categories experienced modest growth. Children’s and infant apparel stores saw transaction counts rise by 8%, though the average transaction size remained flat. Family clothing stores reported a 2% growth in transaction size, despite a 4% decline in transaction counts.
In contrast, hobby, toy, and game stores witnessed a 5% drop in transaction sizes, with transaction counts holding steady. Restaurants and fast-food establishments were among the hardest hit, with restaurants experiencing a 6% decline in transaction counts and a 5% drop in average spend. Fast-food venues fared slightly better but still saw a 1% decrease in transaction counts and an 8% reduction in transaction size.
“The tax holiday brought growth to certain sectors, but for restaurants and fast-food establishments, the story was different,” McCormick explained. “Our data shows a decline in both transaction count and average spend, likely reflecting post-holiday budget tightening.”
Timing and Economic Factors Influence Consumer Behaviour
The timing of the tax holiday, coinciding with the latter part of the holiday shopping season, may have limited its impact. Many consumers had likely completed their major purchases before the tax break began, reducing opportunities for meaningful spending increases.
“The mixed results possibly highlight that timing plays a key role,” said McCormick. “With the tax break coinciding with the latter half of the holiday shopping season, many consumers may have already made their purchases, leaving limited opportunity for a significant impact on spending.”
Additionally, broader economic factors appear to have influenced consumer behaviour. Despite provincial tax-matching initiatives, similar spending patterns across regions suggest that the tax holiday did not align with the core drivers of consumer demand.
“The widespread decline in average transaction sizes suggests that provincial tax-matching policies may not align with what truly drives consumer spending,” McCormick noted. “Similar spending patterns across regions, regardless of tax matching, indicate that broader economic factors were likely at play.”
Preparing for the End of the Tax Holiday
As the GST/HST holiday comes to an end, businesses are reminded to revert to standard tax practices. Merchants who adjusted their systems to accommodate the tax break should ensure compliance with regular tax procedures to maintain smooth operations.
“As the tax holiday comes to an end, remember to switch back to standard tax rates after February 15, 2025. Staying on track with your regular tax practices will help keep your business running smoothly,” McCormick advised.
Moneris plans to release additional data once the tax holiday concludes, offering further insights into its overall economic impact. This analysis will include post-holiday spending trends, with a focus on events such as Valentine’s Day, which may provide a clearer picture of consumer behaviour in the absence of tax incentives.
While the GST/HST holiday’s impact was mixed, its results offer lessons for future policy initiatives aimed at stimulating consumer spending. As McCormick concluded, “The tax holiday didn’t lead to a broad consumer spending surge, but it did spark growth in certain retail categories. Understanding these nuances will be key to shaping effective economic strategies moving forward.”
Tax breaks don’t work? LOL
Seems like the worst message tone saying. No?