Taxing the 1 per cent: a cautionary tale for new finance minister
As Bill Morneau takes over the reins of Canada’s finance ministry, among his thorniest tasks will be to implement Prime Minister Justin Trudeau’s pledge to introduce a higher tax rate for the country’s top earners.
Data released by Statistics Canada this week show the costs of moving ahead.
The agency’s report on Canada’s top one- per- cent tax filers for the first time incorporated the Quebec government’s decision to pursue a similar strategy in its 2012 budget, and the results aren’t encouraging.
Quebec was the only province to see a decline in filers who cracked the top one per cent of earners in 2013, Statistics Canada said, with its share falling to the lowest in at least 30 years. The number of one per centers in Alberta jumped to 23.6 per cent of all Canadian top earners, or 62,345 people, StatsCan said.
Higher taxes for high earners, it turns out, prompts them to move.
“The Liberal government would be off to a very bad start if they go ahead with their tax plan by raising the top rate,” Jack Mintz, a fellow at the School of Public Policy at the University of Calgary, said.
The exodus from Quebec followed a budget measure introduced in November 2012 to create a new top tax bracket for people earning at least $ 100,000, lifting the top tax rate to 25.75 per cent, from 24 per cent. Adding the new federal taxes will make many of Canada’s provinces some of the highest- taxed jurisdictions in the world for people earning $ 200,000, well above a 50- per- cent top marginal rate.
That’s raising some alarm bells in corporate Canada.
“He’s got to be very careful that he watches the competitiveness of our whole tax structure,” Manulife Financial Corp. chief executive Donald Guloien said last month. “It’s one of the reasons Canada has done so well economically is that we have attracted business and talent while U. S. tax rates are going up.”
Morneau, a multimillionaire Toronto businessman, and Trudeau argue tackling inequality is ultimately good for business.
The governing Liberals proposed creating a new tax rate of 33 per cent for people earning more than $ 200,000 a year, up from today’s 29 per cent, while lowering the tax rate for people earning between $ 44,701 and $ 89,401 a year to 20.5 per cent from 22 per cent.
House Leader Dominic Leblanc told reporters in Ottawa the government wants the tax measures to be in place by Jan. 1.
“The long- term success of Canada, as well as in business, includes making sure that all Canadians are successful,” Morneau said in an August interview. “So if the rewards of that success only go to a favoured few, we will end up with a challenge down the road.”
A political newcomer, Morneau takes over the finance file at a critical time, as the economy struggles to rebound from the steep drop in the price of oil and other commodities.
The first political rookie to take on Finance since 1919, he brings considerable experience from the business world. Until recently, he was executive chairman of Morneau Shepell, the country’s largest human resources consulting firm.
The Liberals have also vowed to replace the Conservative government’s income- splitting program for families and its increase to the contribution limit on tax- free savings accounts.
It’s one of the reasons Canada has done so well economically is that we have attracted business and talent while U. S. tax rates are going up.