The Carney government’s new plan to expand GST rebates on new home purchases in Ontario — but not elsewhere in Canada — is bad policy and may further inflame concerns about whether Ottawa treats all provinces fairly.

As part of a deal with the Ontario government, the federal government will spend $875 million so all qualifying buyers receive a full rebate on the 5% goods and services tax (GST) they pay on newly-built home purchases under $1 million (with partial rebates available on homes up to $1.5 million) in the province. Meanwhile, comparable federal GST rebates in the rest of Canada are limited to first-time homebuyers. And for non-first-time homebuyers outside Ontario, the only available federal GST rebate program is much less generous — it refunds 36% of GST charged on new home purchases under $350,000 (with reduced rebates available for homes up to $450,000). In practice, that means non-first-time homebuyers are ineligible for any GST rebate at typical home prices in most of the country.

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Other provinces left out

This is not a small advantage. Imagine two families, one in Alberta and one in Ontario, who both sell their condos and move into newly-built $700,000 homes. Both families would face a $35,000 GST charge on the home purchase. But under this new arrangement, the federal government would refund the entire $35,000 to the Ontario family while the Alberta family would not qualify for any GST rebate. To justify this policy, the Carney government said it wants to “boost housing supply for Canadians and lower costs.”

But a province-specific rebate is a poor way to achieve that goal. Affordability challenges exist across the country, and so do opportunities to build more housing. Since federal tax dollars are scarce, they should be directed where they will do the most to advance the government’s goals. There’s no reason to think the most cost-effective opportunities to improve housing affordability, or to spur homebuilding, are exclusively in Ontario.

Clearly, if expanded GST rebates for new homes are worth the fiscal cost (a question worth debating), the federal government should craft the policy according to a clear national objective, not through a special arrangement for one province. And if these rebates do not make sense as a national policy, they probably don’t make sense for only Ontario home purchases.

There’s also the question of fairness. Fiscal transfers between provinces are controversial enough when tied to some stated formula or policy rationale. But this is something else — a province-specific tax benefit (again, paid for by all Canadians) offered without any clear national framework and without any known path for other provinces to qualify on similar terms. All Canadians should ask why one province receives special treatment from Ottawa without a principled explanation.

Inflaming regional tensions

Simply put, using federal funds to finance a tax break available in just one province is bound to inflame Canada’s pre-existing regional tensions.

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If Ottawa believes expanded GST rebates can help address Canada’s housing affordability problem, it should pursue that goal through a clear national policy, not a special deal for one province. Until the Carney government can explain why Ontario alone deserves this support, Canadians have every reason to see this policy as unfair and poorly designed.

Austin Thompson and Jake Fuss are analysts at the Fraser Institute.

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