Canadians Flocking to US Shops
'GO SOUTH TAX'
THE Go South Tax is the new nickname for the Canadian Goods and Services Tax, or GST. It is being blamed in part for the mass exodus of Canadian shoppers to the United States. "There are more factors than the new tax, but it was the last straw, especially coming in the middle of a recession," says John Winter of John Winter and Associates, a Toronto market research firm.
Retail sales in Canada dipped 6 percent in the first three months of this year when compared with the first three months of 1990.
This was the worst drop in 30 years, according to the government statistical agency. After considering inflation, the real drop was 12 percent.
The hardest hit areas were Ontario and Quebec, which have about 60 percent of Canada's population. Retail sales in Ontario alone dropped by 12.1 percent in the month of March.
One-day shopping trips to the US were up 24.5 percent for the first quarter of 1991 from the same months of 1990.
That will cost Canadian retailers $2.3 billion (Canadian; US$2 billion). This estimate ignores smuggling and assumes people declare everything they bring over.
It is the price differences that are driving people south.
John Winter's firm did a price survey for the town of Fort Frances, Ontario, which is right across the line from International Falls, Minn., and is worried about losing trade. The results were staggering.
"Of 250 items we checked, only about 20 were cheaper in Canada," said Mr. Winter. "The average was 50 percent more expensive in Canada but one item - lettuce on special - was 500 percent more expensive in Canada than just across the border."
Gasoline, which averages $1.10 in the US, is double that in most of Canada. People who live near the border fill up exclusively in the US. At gas stations Canadians can be seen filling up red gas cans to save even more.
Food costs less in the US mainly because government-sanctioned marketing boards set high prices on chicken, eggs, turkey, and all dairy products. These regulated foods are usually double in price - or more. A package of cream cheese is C$2.75 in Mansonville, Quebec; three miles south in North Troy, Vt., it is the equivalent of C$1.30.
People are even driving two hours in one direction to shop for groceries. Mary Wright of Guelph, Ontario, and another housewife drove to Buffalo, N.Y. and bought $500 worth of groceries each.
When they crossed the border, they had to pay 11.9 percent duty; there is no GST on groceries.
"I still saved $250," said Mrs. Wright who plans another trip next month.
HE cross-border shopping phenomenon is part of a tax revolt by Canadians. "A lot of this has to do with anger against the government," says Winter.
The GST, brought in Jan. 1, was to replace the hidden Manufacturer's Sales Tax of 13.5 percent. But a recent survey by the Consumers' Association of Canada shows that prices have not fallen as the government promised.
The association says retailers and manufacturers are keeping the savings.
"The fault is not entirely with the government," said Jenny Hillard, president of the Manitoba branch of the association. "The problem is the savings from the federal sales tax are not being passed on by manufacturers."
The association surveyed 52 items supposed to fall in price because of the tax change; the majority were more expensive.
There are other reasons for the retail sales drop. One is the high value of the Canadian dollar, about 87 cents in US dollar terms, making it cheaper for Canadians to shop in the US.
Another is the inefficiency of Canada's retailing sector. In a survey done for the federal government, Ernst & Young, the accounting firm, found there is usually an extra layer of distribution between the manufacturer and consumer in Canada.
The survey also shows higher retail margins in Canada. Ernst & Young used the example of sheets that sold in the US for $52 (C$60) and in Canada for $133 (C$154).
While tariffs and transportation pushed up the price of the product, the big difference was in the retailer's profit: $18 in the US, $66 in Canada.
Sheets, towels, and other textiles are a popular item for Canadian day trippers to the US.