Food tax reform keeps colliding with governments’ need for revenue

Governments preach affordability, yet they continue to balance their budgets on the backs of Canadians by taxing the very food they rely on

Quebec is poised to become the second province in Canada in recent weeks to roll back provincial sales taxes on food-related items, reinforcing a broader truth governments increasingly struggle to defend: taxing food has always been a flawed way to shape consumer behaviour.

Unlike Manitoba, however, Quebec is taking a broader and arguably more pragmatic approach by extending relief to healthier ready-to-eat products and convenience foods.

Under current tax rules in several provinces, basic groceries are exempt from provincial sales taxes, while many prepared or ready-to-eat foods remain taxable. That distinction matters.

Too often, public policy assumes that only “junk food” is taxed, when in reality many prepared and nutritious options remain subject to provincial sales taxes simply because they are convenient.

Quebec’s new measure, expected to cost more than $100 million annually, acknowledges a reality many policymakers ignore: convenience is no longer a luxury. For many Canadians, it is a necessity.

The average household is expected to save roughly $50 annually. Critics will argue that the savings are insignificant, and from a purely macroeconomic standpoint, they are correct. Fifty dollars will not solve Canada’s affordability crisis.

But food taxation has always been about more than arithmetic. Retail taxes disproportionately penalize seniors on fixed incomes, individuals living alone, and consumers who either cannot cook regularly or simply choose not to. Preparing meals for one person every single day is neither economical nor particularly motivating.

In many cases, ready-to-eat meals reduce food waste and improve accessibility. Tax systems that penalize convenience foods often fail to recognize these demographic and behavioural realities.

The broader assumption underpinning food taxation policy—that taxes significantly discourage unhealthy consumption—is also far less convincing than many policymakers suggest. Newfoundland and Labrador offered a compelling case study. Its sugar tax, introduced with the intention of reducing sugary drink consumption, was eventually repealed in 2025 after mounting criticism over affordability and limited behavioural impact. While research indicated the tax modestly reduced purchases of sugary beverages, overall consumption patterns changed far less dramatically.

The Newfoundland experience showed something basic about consumer behaviour: when prices rise, people rarely stop buying altogether; they adapt by trading down, switching categories or changing shopping habits. More importantly, the measure became politically difficult to defend as inflation accelerated and household budgets tightened.

Mexico offers an even larger example of the same problem. Its sugary drink tax, introduced in 2014, remains one of the most analyzed food-taxation experiments in the world. The country imposed a one-peso-per-litre levy on sugar-sweetened beverages in an effort to combat obesity and diabetes. Early evidence suggested purchases of taxed beverages declined between six and 10 per cent during the first years of implementation, with the largest reductions occurring among lower-income households.

Mexico demonstrated that highly visible retail taxes can influence buying habits, especially when targeting products perceived as discretionary. Public-health advocates celebrated the policy as a success, particularly as bottled water purchases increased and consumer awareness around sugar consumption improved.

But Mexico also exposed the limitations of taxation as a long-term nutrition strategy. While soda sales declined, many consumers substituted toward untaxed juices, snacks and other calorie-dense alternatives. In other words, purchasing patterns shifted, but overall sugar consumption may not have declined nearly as dramatically as policymakers had hoped.

The Mexican experience demonstrated that while taxation can influence buying behaviour, meaningful public-health improvements require broader interventions, including education, reformulation, clearer labelling and improved access to healthier alternatives. The sugary drink tax also failed to produce a significant nationwide decline in diabetes rates over 11 years.

Taxing food remains deeply problematic from both an economic and ethical standpoint. Food is not tobacco. It is not alcohol. It is a necessity of life. Governments should not penalize consumers based on where food is purchased, how it is prepared or whether convenience plays a role in consumption.

Provinces should move toward eliminating sales taxes on all food products, regardless of category or point of consumption. But provinces operating under harmonized sales tax systems, such as Ontario and the Atlantic provinces, face a major obstacle: governments have become dependent on the steady stream of revenue generated through the GST.

That is the real reason meaningful food tax reform remains so elusive in Canada.

Dr. Sylvain Charlebois is senior director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast and visiting scholar at McGill University.