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Some commentators argue that the cost-of-living crisis is mostly perception and that targeted income supports such as the new Canada Groceries and Essentials Benefit are deficit-financed handouts that discourage work, fuel inflation or waste public funds that would be better spent on business investment.
These claims don’t hold up to scrutiny. The affordability crunch facing lower-income households is both real and measurable.
The new groceries benefit is a positive step, although likely insufficient to make a meaningful dent in food insecurity.
Its cost is manageable and there are other ways to reduce the federal deficit or find the money needed to spur economic growth that don’t involve ignoring the human suffering that comes from prolonged food insecurity.
Unfortunately, several myths about the cost-of-living crisis and income support programs continue to pervade the national discourse. It’s time to slay those myths.
Myth 1: The cost-of-living crisis is mostly perception
The percentage of Canadians who are moderately to severely food insecure doubled between 2019 and 2023. Almost 20 per cent of the population is worried that they will not have enough food to eat. Monthly food bank use was twice as high in 2025 as it was in 2019, reaching more than two million visits in March 2025 – the latest month for which statistics are available. People don’t use food banks on a whim.
When households can’t cut back on fixed costs such as rent or utilities, they spend less on groceries. While the rate of inflation has eased from its peak in June 2022, the price of essentials is far higher than it was six years ago. Since 2019, the consumer price index rose by roughly 21 per cent, but the price of food purchased from stores rose by 31 per cent and shelter costs increased by 30 per cent.
By the third quarter of 2025, the lowest-income households (the bottom 20 per cent) were spending about 115 per cent of their disposable income (before government transfers) on shelter, food purchased from stores and transportation. Low-income households (the second-lowest quintile) were spending about 67 per cent. In contrast, the highest-income households (the top 20 per cent) spent only about one-third of their disposable income on essentials.
The squeeze is also showing up in income statistics. In the third quarter of 2025, the lowest-income households were the only group that did not see growth in average disposable income (minus 0.5 per cent year over year) because wage gains were offset by declines in self-employment income and net investment income.
Wealth inequality has also risen, with low-income households sinking deeper into debt over the past six years while higher-income households saw the value of their assets and savings grow.
For many Canadians, the cost-of-living crisis is not a vibecession, or perception, as former finance minister Chrystia Freeland once said. They face hard choices every month, often deciding between paying for rent, food or heat.
Myth 2: Cash transfers stoke consumption, inflation and government debt
When it comes to government stoking inflation, there is a big difference between broad-based economic stimulus spending, such as the measures former prime minister Stephen Harper introduced during the 2008-09 financial crisis, and targeted support aimed at preventing human suffering.
For households struggling with basics, additional dollars don’t translate into frivolous spending sprees. They translate into groceries, rent and keeping the lights on. For many low-income households, additional income may be used to slow rising credit card balances or other high-interest debt rather than increase their spending. There is also growing evidence that the root causes of rising food and housing prices go beyond overheated demand.
The cost-effectiveness of government spending on income support depends on the delivery channel. Our research shows that using the GST/HST credit is a practical way to provide more money to the households that need it most. It allows additional funds to flow quickly with limited administrative cost. Other mechanisms, such as the Canada Child Benefit or the Canada Workers Benefit, miss segments of the population that need help, making those programs less effective.
It’s also worth putting the scale of income support in context. The new benefit includes a one-time 50-per-cent top-up and a five-year 25-per-cent increase to the existing GST credit. A single adult eligible for the maximum payment will receive an additional $402 in the first year ($33.50 per month) and an additional $136 in subsequent years ($11 per month). A couple with two children could receive up to $805 more in the first year ($67 per month) and about $272 more in later years ($22.67 per month).
While these are meaningful amounts for low-income households, they are not substantial enough to drive an inflationary, large-scale spending splurge. In fact, the most credible criticism of the policy is that it is too little to curb the rise in food insecurity in Canada.
The Affordability Action Council – a collaboration between diverse policy experts and community leaders, of which the Institute for Research on Public Policy is the research lead – recommended providing three times those amounts for those most in need.
This is not to say that deficit reduction is not a valid policy objective. Canadians will eventually have to pay for increased spending and every dollar used to service the debt is a dollar less for critical government programs.
Finance Canada estimates the new benefit will deliver $11.7 billion in additional support over six years, while the parliamentary budget officer estimates the cost at $12.4 billion between the fiscal years 2025-26 and 2030-31. Spread across six years, the cost is roughly $2 billion a year or about 0.4 per cent of annual federal spending.
If the federal government wants to cut back on social program spending, there are alternatives that would be less harmful. For example, the child benefit could be retargeted by reducing or eliminating payments to high-income families and providing additional room for higher payments to low-income households.
Myth 3: Income-tested benefits discourage work
Critics argue transfer programs that phase out benefits as income rises discourage people from working. However, targeting based on income is the only way to deliver additional income support without breaking the federal bank. Economists call the combined effect of taxes and benefit phase-outs “marginal effective tax rates.”
The GST/HST credit begins to be phased out at an income threshold of $46,432 for the 2026-27 benefit year. It is reduced by five cents for every additional dollar of adjusted family net income above that threshold.
The Office of the Parliamentary Budget Officer concluded the new groceries benefit is unlikely to have a significant behavioural impact. This finding is backed by research on disincentives to work that shows benefit changes do not substantially reduce labour supply. People’s perceptions to the contrary may be inaccurate. In fact, the impact of cash transfers tend to be small, especially for those already working.
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Food Banks Canada reports that 19.4 per cent of its clients cite employment as their main source of income, which is a sign of inadequate incomes, not of people opting out of work.
For example, consider a single adult working full time at the minimum wage in Ontario. They could have an income in the range of $30,000 per year after typical deductions. Providing them an additional $402 in income support for one year and an additional $136 in subsequent years should play no role in determining how much they work.
Myth 4: Tax dollars would be better spent on the economy
Canada is at a critical moment, when our sovereignty and standard of living depend on our ability to quickly diversify trade, invest in defensive capabilities and improve productivity. Governments need to play a critical role, which includes programs that drive private sector investment toward strategic areas.
But governments can walk and chew gum at the same time. With smart and targeted spending, they can invest in both the economy and income supports for those most in need.
Income supports also have positive economic benefits. Well-designed transfers can boost labour-force participation and help prevent downstream public costs in health care, shelter and the criminal justice system. Improving food security in childhood has also been shown to improve lifetime earnings and economic self-sufficiency.
Moving beyond the false dichotomy of left versus right
Increased spending on income support has historically been thought of as a policy of progressives or left-leaning parties. However, we now have all major federal parties acknowledging the affordability crisis. Polls show that affordability remains a top issue for Canadians.
This provides a window of opportunity to finally slay the myths around income support.
Instead, we can hope for informed political debates about the most cost-effective policy approaches that reflect shared Canadian values.
