Nightmare on Penny Lane - Part II 

by John Palmer

Many people know me as the unofficial chair of the "Ban the Penny" Campaign. I've gone on the record as saying that pennies are a waste and that we should stop using them. I've appeared on The Journal, been interviewed by mediots from all provinces, and debated the question on CBC.

In brief, my argument is that pennies are a nuisance, imposing high costs on individuals; that pennies are so out of favour people rarely pick them up off the sidewalks any more; that people save their pennies but can't be bothered counting and rolling them; that counting pennies in change leads to untold hours of wasted time in stores; and that the copper and labour used to produce pennies have more valuable alternative uses.

Lately, though, stories have appeared in print and over the air, pointing out how the mint has increased its production of pennies because of the Goods and Services Tax (GST). This increase is not something that pleases me. Furthermore, it should be viewed as transitory rather than permanent. Let's face it: the GST doesn't make pennies any less of a nuisance!

The stories would have us believe that because of the GST, prices which used to come out even now have extra pennies attached to them, and hence the demand for pennies to carry on business has skyrocketed. If these stories are correct, an inescapable conclusion is that businesses will eventually be altering their prices so that they can stop fooling around with pennies.

If you consider all the possible prices between one cent and ten dollars, you realize that there are 200 such prices ending in either a five or a zero. If you multiply each of those possible prices by 1.08, to account for the Ontario Provincial Sales Tax (PST before the GST), it turns out that 199 of the prices end in either five or zero. And if you then multiply those prices by 1.07 (the GST, applied to sticker price plus the PST), there are still 199 prices ending in either five or zero.

So if all prices randomly fell somewhere between 1 cent and 10 dollars, the advent of the GST should not have had any effect on the demand for pennies.

But the evidence suggests that it did. And the reason is that prices are not set randomly. Before the GST, many merchants had figured out which prices would cut down on their use of pennies, and customers were served much more quickly. And because pennies are such worthless annoyances, merchants will eventually adjust their prices again to reduce the use of pennies.

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