Blogs & Comment

A fast and cheap way to stimulate the economy: a food rebate

The government can meet two goals with one round of cheques: combat food price inflation and stimulate business

Shoppers picking out produce in a grocery store

(Chris So/Toronto Star/Getty)

Bay Street and academia continue to be at odds about the need for fiscal stimulus. It is time for a truce.

I have yet to see an academic economist (though may one exist) object to additional spending that could pass a cost-benefit test that excludes the stimulus effect. Or as Stephen Gordon puts it, academic economists “generally remain open to the idea of using well-thought-out infrastructure projects to promote long-term growth.”

In order to keep Bay St. and University Ave. in harmony we need to identify policies that are stimulative but can be justified on non-stimulus grounds. Moving up infrastructure spending is one way, so long as those projects are worth doing at all and accelerating timelines does not increase the costs of those projects. In many cases, acceleration should lower their costs, as nominal interest rates will likely be higher two years from now than they are today, and idle construction crews in Alberta are relatively abundant.

But we should not limit our policy options to infrastucture. Trevor Tombe has illustrated the downside to infrastructure as stimulus, including (but not limited to) the lag in getting money out the door. The federal government should also consider policies where funds can be distributed relatively quickly and serve a useful public policy purpose beyond stimulus.

For example, Canada’s changing economic conditions and the plummeting loonie has caused a substantial increase in the price of healthy food. Groups like the New Brunswick Food Security Action Network have raised concerns about the impact of food inflation on low-income and fixed-income households. This should be a top of mind issue for any government, particularly one that campaigned on helping the middle-class and those working hard to join the middle class. And there is an obvious way to help out families struggling to pay the grocery bill: give them money.

The simplest way to distribute the cash is to piggyback on Canada’s GST/HST credit program that provides cheques to low-income households, where eligibility and the amounts given to a family are based on household income and composition of the family, including the number of children. The money is provided at quarterly intervals and the total annual cost of the program is roughly $4 billion, so each quarter roughly $1 billion is mailed out.

A Canadian food inflation rebate program could be as simple as issuing a fifth rebate cheque in 2016, which would provide an extra $1 billion to the families that need it the most (and would be most likely to spend the money quickly, thus stimulating the economy). The cheques do not have to be tied in the public’s mind to the GST credit; call it the Canada Food Inflation Rebate (CFIR), but piggyback it off of the existing infrastructure provided by the GST credit program.

There is some precedent for this, as it is roughly similar to the Chretien government’s fuel-rebate program in 2000, though in that program the amounts were different from the GST rebate cheques (but the eligibility criteria and recipient list was identical to the GST credit program). Measures would need to be taken to ensure the GST credit cheque list is up-to-date, to avoid the administrative issues that cropped up with the 2000 program. The CFIR, or something like it, would help families struggling with Canada’s changing economic conditions, provide timely stimulus and is administratively inexpensive.

There may be other policy proposals that the Ivory Tower and the Street could agree on. The important thing is that two sides end this rift. Furthermore, it is important that we not get too distracted by the stimulus debate and work together to promote an agenda for long-term economic growth for the country, which should include reform of a tax system that has grown out of control, finalizing trade agreements, kickstart a lagging regulatory harmonization agenda and ensuring young Canadians have the skills to compete in a global market place. So let’s call the whole fight off.