NRPLUS MEMBER ARTICLE T here’s been a recent development in a lengthy campaign of political grandstanding, economic confusion, and utter stupidity: Canada’s federal government wants to look at tackling rising food prices through special taxation of grocery stores. In a recent report, the Parliament’s Standing Committee on Agriculture and Agri-Food “recommends that, if the Competition Bureau finds evidence in its upcoming market study that large grocery chains are generating excess profits on food items, the Government of Canada should consider introducing a windfall profits tax on large, price-setting corporations to disincentivize excess hikes in their profit margins for these items.”

The committee did not say what level of profits are “excessive,” nor provide any good reasons (there are none) why government should decide such things. In fact, in a free society, the social responsibility of business is to increase its profits. Imposing special taxes on corporations for earning profits is as dumb as imposing fines on MLB pitchers for striking out too many batters — that’s their job. The Competition Bureau’s study has since concluded (based on data it admits are incomplete or imprecise in many instances) that the spread between sales and cost of sales are today a mere one to two percentage points higher than they were in 2017.

Recommending a tax is outside the Competition Bureau’s mandate, but tax-happy politicians may well point to this report of a slight one to two percentage-point increase to slap higher taxes on grocery stores. Doing so would be consistent with the federal government’s ongoing attack on grocery stores and its promotion of the “greedflation” myth to direct public anger at rising food prices toward the most convenient scapegoat: allegedly greedy businessmen. It is notable that politicians and activists blaming corporate greed for rising prices in the last two years did not credit corporate generosity for the three decades of relatively low and stable inflation from the early 1990s to mid 2021. Quite the opposite, in fact. Even during the early days of the pandemic, when inflation was under 1 percent, politicians and activists railed against grocery-store profits.

The main effect political attacks on grocery stores have on food prices may well be to push them higher. In December 2022 and then again earlier this year, the parliamentary agriculture committee summoned executives from the country’s largest grocery chains to answer for their food prices and corporate activities. In one session of this shambolic inquisition, Alistair MacGregor of the left-wing New Democratic Party complained that Loblaw (the country’s largest grocery-store chain) was underpaying its workers. Whether increasing grocers’ labor costs would make food prices higher or lower, MacGregor did not say.

Whatever erratic regulation and punitive taxation result from these political shenanigans, they will inflate the cost of doing business for food suppliers. Both the direct costs of higher regulation and taxation, as well as the uncertainty that arises when public policy is guided by populist sentiment instead of sound economics, discourage investment in the sector and ultimately lead to less choice and higher consumer prices.

Even before the introduction of any new taxes or regulation, the Canadian government’s existing policy regime significantly inflates food prices by increasing input costs (through various measures said to be necessary to reduce global warming) and limiting output. A primary example of this: As at the 2022 year-end, the total value of the quotas on the agricultural sector’s balance sheet — that is, the artificial monopoly value to farms of government forcing consumers to pay inflated prices — was C$43.4 billion. Not included in that figure are the losses to consumers as a result of food that is never made available to consume as a result of government’s output restrictions.

Contrast this massive governmental effort to inflate food prices with the supposedly excessive profit margins grocery stores are said to earn. In its latest financial statements, Empire Company (second in market share behind Loblaw, but more representative of the food-sales industry since Loblaw also includes a bank and pharmacy) reported net earnings of C$727.7 million on sales of C$30.5 billion in the past year. So net earnings were only 2.4 percent of sales — a tiny fraction, as one might expect in a competitive industry. Other companies have similarly reported, including when summoned to Parliament, that their food-sales margins are in the low single digits and approximately flat over time.

With such tiny profit margins, even a slight tax cannot be absorbed by shareholders — it would be passed on to consumers in the form of higher prices. And to the extent investors do take a hit in the short run, it would cause investment to be slowed or withdrawn over the longer term, with the effect of less choice, higher prices, and worse outcomes for consumers. “Greedflation” in competitive markets with low single-digit earnings margins simply does not exist. On the other hand, government-caused inflation, including through policies premised on the greedflation myth, is very real.