In pol­i­tics, tim­ing is key

The fed­eral gov­ern­ment could have re­leased its pro­pos­als to re­form the tax­a­tion of small cor­po­ra­tions with more fi­nesse

Investment Executive - - COMMENT & INSIGHT - BY GORD MCIN­TOSH

for some rea­son, gov­ern­ments ev­ery­where think they can es­cape the pub­lic’s wrath by an­nounc­ing bad news late on Fri­day af­ter­noons or in the dog days of sum­mer, when pol­i­tics tend to be the far­thest thing from peo­ple’s minds.

No mat­ter what party is in power, they all do it — the logic be­ing that if the bad news is an­nounced when ev­ery­body is in leisure mode, what­ever is re­ported, if it is at all, will have di­min­ished im­pact.

This stan­dard prac­tice, known as “tak­ing out the trash,” prob­a­bly worked in for­mer years. But in this era of the 24-hour news cy­cle, that doesn’t work any­more. If any­thing, this prac­tice now prob­a­bly has the op­po­site ef­fect, as the fed­eral gov­ern­ment now is find­ing out.

Let’s look at Fi­nance Min­is­ter Bill Morneau’s con­sul­ta­tion pa­per on pri­vate pro­fes­sional cor­po­ra­tions, an­nounced one sleepy Tues­day in mid-July, when Cana­di­ans were on va­ca­tion or barely lug­ging their brains to the of­fice.

Morneau told the sum­mer­ing cit­i­zenry he would ac­cept their views on the tax fair­ness pro­pos­als un­til Oct. 2. That would be less than a month af­ter Labour Day and ex­actly two weeks af­ter Par­lia­ment would re­con­vene af­ter the sum­mer break.

The Carter Com­mis­sion of the 1960s may have needed four years to look at tax fair­ness. But this gov­ern­ment thought it would need to lis­ten to Cana­di­ans for only 72 days.

As we know now, this com­mu­ni­ca­tions strat­egy by the gov­ern­ment of sunny ways has been some­what less than suc­cess­ful. The na­tion’s doc­tors have been near hys­ter­i­cal. Self-em­ployed Cana­di­ans, from farm­ers to ac­coun­tants, are giv­ing their Lib­eral mem­bers of Par­lia­ment (MPs) an ear­ful. Those same MPs have been giv­ing their gov­ern­ment an ear­ful, and the Con­ser­va­tives think they fi­nally have a cud­gel with which to beat up Prime Min­is­ter Justin Trudeau.

The draft leg­is­la­tion to limit “in­come sprin­kling” and other l oop­holes made pos­si­ble by pri­vate pro­fes­sional cor­po­ra­tions springs from a cam­paign prom­ise in 2015 to clamp down on tax strate­gies the wealthy use to im­pose an un­fair bur­den on mid­dle-class Cana­di­ans.

The trou­ble is those who are the an­gri­est look rather mid­dle class. And this gov­ern­ment loves the mid­dle class. Re­mem­ber?

But be­fore any­one thinks this is­sue is the be­gin­ning of the end for Trudeau’s gov­ern­ment be­cause of a reck­less act of hubris, there are quite a few things to con­sider.

The Lib­er­als are still 10 to 12 per­cent­age points ahead of the Con­ser­va­tives in the polls. Canada’s econ­omy is thriv­ing. An­drew Scheer has been less than suc­cess­ful at mount­ing a charisma of­fen­sive as Con­ser­va­tive leader. And the New Demo­cratic Party (NDP) needs more — a lot more — than just a new leader.

So, the cur­rent gov­ern­ment still has plenty of time to learn from its mis­takes. For ex­am­ple, there were signs of a strate­gic re­treat shortly af­ter Labour Day. The prime min­is­ter re­as­sured us there was still time to tweak the bill. Morneau is talk­ing a lit­tle softer since a gov­ern­ment cau­cus re­treat af­ter Labour Day.

And while those who op­pose Morneau’s changes are mak­ing a lot of noise, where most vot­ers stand still isn’t clear.

The elec­torate could very well be split, in which case the fi­nance min­is­ter will get his way. A lot of those who voted Lib­eral, es­pe­cially those can­ni­bal­ized from the NDP, would like to see Ottawa stick it to the rich peo­ple.

Re­gard­less of what hap­pens in the end, this pro­posal has been a costly mis­take — all be­cause the gov­ern­ment tried to im­ple­ment ma­jor tax changes while the elec­torate was think­ing about the cot­tage and beer on the pa­tio.

Now would be a good time — be­cause the econ­omy is per­form­ing so strongly — to de­clare vic­tory in the use of deficit stim­u­lus and come up with a deficit elim­i­na­tion plan. In­stead, Morneau’s con­sul­ta­tion pa­per will suck up a lot of oxy­gen and po­lit­i­cal cap­i­tal as the gov­ern­ment ap­proaches the mid­point of its term of of­fice.

Once the fuss dies down, the Lib­er­als will take their time be­fore pro­duc­ing leg­is­la­tion on small-business tax re­form. Per­haps for­mer prime min­is­ter John Diefen­baker was smarter than we re­al­ized, when he sent the Carter Com­mis­sion away for four years to study tax fair­ness in 1962. A slow-mov­ing royal com­mis­sion on tax re­form prob­a­bly looks very good to Trudeau right about now.

Morneau’s pa­per will suck up a lot of oxy­gen and po­lit­i­cal cap­i­tal

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