Economist Warns GST Credit Transformation Creates Work Disincentives for Canadian Families
Prominent economist Jack Mintz has issued a stark warning about the federal government's recent announcement regarding the Goods and Services Tax credit. In a detailed analysis published on January 30, 2026, Mintz argues that Prime Minister Mark Carney's decision to boost and rename the GST credit represents a fundamental shift toward another welfare program that could significantly discourage workforce participation, particularly among secondary earners in Canadian families.
From Tax Offset to Social Program: The GST Credit's Evolution
Prime Minister Mark Carney this week unveiled substantial changes to the GST tax credit system, rebranding it as the "Canada Groceries and Essentials Benefit." This refundable credit, traditionally designed to assist low-income Canadians with consumption taxes, will see dramatic increases beginning April 1. The program will be topped up by 50 percent in its first year and 25 percent for each of the following four years, fundamentally altering its economic purpose according to Mintz.
"The GST tax credit was never intended to function as a social program," Mintz emphasizes. "Its original role was to make the GST progressive by effectively rebating the tax paid by low-income Canadians. This transformation into a welfare-style benefit represents a significant departure from its foundational purpose."
Financial Implications and Economic Consequences
The enhanced program carries substantial financial weight, with projected costs reaching $11.7 billion over five years. For individual recipients, this translates to maximum annual payments of $950 for single persons in 2026-27, while married couples with two children could receive up to $1,890 during the same period. However, Mintz points out a critical design flaw: once family income surpasses approximately $46,300, the credit diminishes by five cents for every additional dollar earned, effectively creating a marginal tax on additional income.
"This structure creates clear work disincentives," Mintz explains. "Secondary earners in families, particularly those considering entering or increasing their participation in the workforce, face what amounts to a significant tax on their additional earnings. The economic effect will be to discourage work precisely when Canada needs greater labor force participation."
Historical Context and Policy Drift
Mintz traces the gradual transformation of the GST credit from its implementation in 1991. He notes that successive governments have increasingly lost sight of the credit's original purpose as an offset to GST payments. When the Harper government reduced the GST rate from seven to five percent in 2008, corresponding reductions to the tax credit failed to materialize. The Trudeau administration further expanded the credit from July 2022 to June 2023 to address inflation concerns.
"Now, the Carney government is completing the GST credit's transition into just another welfare program," Mintz observes. "This represents a fundamental shift in how we approach both tax policy and social support systems in Canada."
Broader Tax Policy Considerations
The economist raises additional concerns about Canada's overall consumption tax framework. He notes that Canada currently taxes only about half of consumption, significantly below the OECD average of 58 percent. Mintz suggests that with a broader GST base similar to New Zealand's system, both federal and provincial tax rates could be substantially reduced while maintaining revenue neutrality.
"The irony of using food prices as justification for boosting the GST credit is particularly striking," Mintz points out. "Groceries are already tax-exempt in Canada—Canadians don't pay GST or HST on them. Using food affordability concerns to expand a tax credit for a product that isn't taxed creates policy inconsistencies that undermine the tax system's coherence."
Funding Questions and Economic Impact
Mintz raises critical questions about how the $11.7 billion program will be financed. "Low-income Canadians will clearly benefit from these enhanced payments," he acknowledges, "but someone must ultimately bear the cost through higher taxes, reduced federal program spending, or increased national debt. The program may boost demand for essentials like groceries, potentially contributing to price increases in those very sectors it aims to make more affordable."
The economist concludes that while addressing affordability concerns is important, transforming the GST credit into a welfare program creates unintended consequences that could undermine both workforce participation and tax policy objectives. As the April implementation date approaches, Mintz's analysis suggests Canadians should carefully consider both the immediate benefits and long-term implications of this significant policy shift.
