A penny for your…. prediction

A passing prediction on the demise of the penny announced in yesterday’s budget (and yes, I have done my share of handwringing over that budget already):

Though I care little about the Canadian penny’s death, I think it should be recognized as the hidden transfer to business that it is- particularly brick and mortar business which still offer cash transactions.

How so?

Since taxes in Canada are percentage-based, it is rare to see a cash-register ring up an even number. HST, GST, whatever… if it costs $1.00 in store price, it costs $1.12 at the register. Without the penny, how will change get made?

Obviously a shop isn’t going to round down on transactions, particularly for small business that could really hurt them because they would fall short on their tax-remittance to the government at the end of the year. So that leaves round-up as the only real option – which means if something comes to $5.11 the consumer will pay $5.15 and the 4 cent difference will go to the business.

Because that will seem unfair to the consumer at the till, I believe Canada will shortly move to after-tax pricing which both hides the tax rate, and the fact that the business is charging more than goods + tax cost will also be hidden. Some people prefer after-tax pricing, some people hate it – I’m ambivalent myself – but the fact remains that this scheme gives business the chance on some transactions to make as much as an extra 4 cents.

This really is nothing to a small business with a hundred transactions per day (the most this could work out to is $1460 per year which would then be taxed on top). But if you are Walmart or Safeway, doing thousands of transactions per day in dozens of stores then it adds up. 10,000 transactions with an extra 4 cents added on for 365 days amounts to $146,000 – and I am sure that these chains do more than 10,000 transactions per day.

As a consumer, I’m really not too fussed about an extra 4 cents on a bag of groceries – but as a taxpayer, I am concerned that the government isn’t being more transparent about the implications of eliminating the penny in a percentage-based tax system. It certainly opens the door for another wealth transfer, one that doesn’t do much for the small business, but does an awful lot for the retail giants who are already advantaged in our cheap-good-loving society.

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