Morneau fights back against tax change 'misinformation'
• With Parliament due to resume sitting next week, Finance Minister Bill Morneau is digging in on his proposed tax changes and mounting a campaign against what he calls misinformation about it.
The tax changes have been the hot topic of discussion at the Sheraton Hotel Newfoundland, where cabinet ministers met this week to prepare for the fall sitting.
It ’s not j ust business groups and opposition Conservatives who’ve been blasting the government in the media; Liberal MPs are increasingly speaking up about their concerns with the proposed changes, including finance committee chair Wayne Easter, who told the Globe and Mail the communication strategy around the reforms was “God-awful.”
Meanwhile, Newfoundland and Labrador Premier Dwight Ball told cabinet ministers on Tuesday that there’s a “disconnect” between what the government intends and what the public believes about the changes.
Morneau said he knows people need more information, and he’s working on getting it out ahead of the Oct. 2 deadline on the consultation process.
“I’m going to be out over the course of the next month giving people greater clarity on exactly what we’re trying to achieve,” he said. “Other members of our government will be trying to do the same thing. We’re going to continue to listen to issues of clarification required by business people, by professionals, by wealthy Canadians.
“Anything we actually move forward on will include much more information because we will have accumulated the concerns and issues and complex requirements through the course of consultations. People should expect to see more once we’ve finished the consultations, once we’ve heard from them, and once we’ve decided what to move forward on.”
He said once the consultations are done, the government will consider tweaks to prevent “administrative problems” or other unintended impacts down the road.
Asked if he’s worried that the furor over the changes will put a chill on people thinking about starting a business, Morneau said his emphasis is on protecting investments in active business operations.
“Anything we hear that will discourage people from making investments in their active business will absolutely be taken into consideration,” he said. “Again, our goal is to make sure that people have the opportunity to invest and the incentive to invest in their business.”
He said his government is constantly looking at options for small business incentives. “I don’t have anything to announce right now, but that’s something we are always looking at,” he said.
Prime Minister Justin Trudeau also defended the proposals at the retreat, telling reporters he’s not angry about the public complaints some Liberals have made.
“I’m proud that our caucus has a broad range of views and perspectives on the best way to move forward on things, and I encourage a broad range of voices speaking up within the Liberal Party,” he said.
Ball, who leads a provincial Liberal government, said Newfoundland business owners are confused about what the changes will mean for them. He cited one story of a coffee- shop owner who wrongly thought her tax bill would nearly double.
“The owner stepped out in front, she says, ‘ You know, I can’t afford 73-per-cent increases and this is what these proposed changes would mean to me.’ Well, in actual fact, the business owner that I talked to would never be impacted to that degree by the changes we’re talking about here.”
Morneau said this is an example of how the public is “hearing much misinformation about these tax changes.”
Speaking at a small- business roundtable on Wednesday, he said some groups are citing scenarios that only apply to a small group of the wealthy.
“What we’re seeing is people putting out examples that in many, I think most cases, don’t apply to the businesses that are concerned,” he said.
Morneau said he personally called the owner of the coffee shop on Wednesday morning to clarify how the tax proposals would work.
The government’s proposals, released in July, target three tax- planning methods that make use of private corporations to save on income taxes: sprinkling income among family members named as shareholders, growing an investment portfolio inside a corporation as “passive income,” and converting income into capital gains.
The 73- per- cent figure to which the coffee-shop owner referred concerns the passive income changes, which are complex ( and which, in terms of the money involved, are by far the most significant component of the government’s proposed changes, despite the frequent focus on income sprinkling).
Tax experts have said a portion of the passive investment portfolio currently benefiting f rom a l ower corporate tax rate would be subject to 73 per cent in total taxes if the changes go through.
Morneau says the goal is to remove any difference that results from someone starting that investment portfolio outside or inside a corporation. The government also intends to grandfather in existing passive investment portfolios, so the old rules will continue to apply to those.
Opponents argue there are other reasons for keeping a passive investment portfolio inside a business that the government isn’t considering, and is penalizing unfairly.
Business groups, including some in Newfoundland this week, have repeatedly asked for a longer consultation period, but Morneau isn’t budging. “We believe that the time period for the consultation is appropriate,” he said.