GET READY FOR NAUGHTY LITTLE TAXES.

Our deficit-plagued federal and provincial governments are readying themselves with a host of potential tax hikes for an unsuspecting electorate. Most experts focus on the big taxes — income, payroll, property and sales — that may need higher rates to feed politicians’ insatiable appetite for public spending. But the taxes that show up more often are the naughty little ones that slip by without much reaction.

What do I mean by a “naughty little tax”? All taxes are naughty in that they cost money to collect, and impose economic costs by discouraging work, investment and risk-taking. The little ones, however, are special. They are low in revenues (typically less than a half point of GDP) but high in virtue signalling. Few taxpayers are affected, and the tax typically appeals to a governing party’s political base. Here are some examples.

Net wealth taxes: The NDP is pushing for a one per cent annual net wealth tax on fortunes more than $20 million. The Parliamentary Budget Officer predicts the tax would raise 0.2 per cent of GDP ($5.6 billion). The virtue is in supposedly making a few wealthy Canadians pay “their fair share” — even though the top one per cent already pays close to 20 per cent of personal income taxes. The extra revenue won’t make much of a dent in $500 billion in federal spending this year. Of the 12 countries that had general net wealth taxes in 1990, only four still do today (Colombia, Norway, Spain and Switzerland) and they collect only small amounts of revenue. Many countries have annual property taxes on housing that raise much more revenue.

Net wealth taxes fell out of fashion because countries were already levying taxes on investment income and capital gains with progressive rates. It is also difficult to tax non-marketed assets like farm property, private corporate shares, jewelry and art, because the value of such assets is hard to establish. In some cases, the tax also forced taxpayers to sell off their businesses and farms if they did not have the money to pay it.

Luxury taxes: The Liberals have joined the worldwide bandwagon with the 2021 budget’s proposed luxury tax on automobiles and private aircraft costing more than $100,000 and boats worth more $250,000. Taxing the conspicuous consumption of the rich signals virtue but it raises relatively little revenue at relatively high administrative and compliance costs. (The budget itself forecasts only $140 million in annual revenue, mainly from automobiles). Only 10 countries have luxury taxes and they are more typically applied to jewelry, furs, furniture and club fees.

The United States tried to impose a luxury boat tax in the early 1990s but withdrew it after discovering that those who ended up paying it were boatbuilders and their employees — though with personal spaceships becoming the latest fad in conspicuous consumption, perhaps it is time to try again.

Sustainability taxes: With the world undergoing an energy transformation in coming decades, governments will need replacements for fuel and carbon taxes. Some revenue will be made up by eventually eliminating expensive electric vehicle (EV) subsidies and tax concessions, but that won’t be enough. Besides, electric cars, being heavier, cause even more road damage than internal-combustion cars, so eventually they’re likely to be taxed. Already 28 U.S. states have extra registration fees for electric cars while some Australian states have an annual road tax (AUS$500) on EVS. The U.K. is considering an EV road tax based on distance travelled. And toll charges may come into greater use.

Sustainability taxes may make their way into the investment world, too. With the loss of royalties from fossil fuel industries, governments may look to higher taxes on wind, solar, nuclear and other projects.

Non-resident housing taxes: In this year’s budget, the federal government stuck its thumb deep into the real estate pie with a one per cent tax on non-resident-occupied housing. It joins other countries with similar levies (Australia, New Zealand and the U.K.) as well as B.C. and Ontario, though these provinces’ taxes so far have done little to reduce the housing prices, which suggests federal virtue-signalling may not, either. The tax, estimated to raise only $140 million a year, comes with high costs because Ottawa has to set up its own administrative structure. In any case, it is nonsensical for the federal government to levy such a tax, because housing markets are regional by nature and are heavily influenced by municipal zoning laws and property taxes that differ across provinces.

Some other naughty taxes include media duties to fund national broadcasters (as in Denmark, Iceland and the U.K.), sugar or junk food taxes, financial institution taxes on capital or payroll (already used in Canada), and shipping vessel taxes (China and Slovenia). In the past, some countries have taxed dogs. With so many Canadians having bought pets during lockdown, maybe it’s time for such a tax here.

With governments wishing to expand their girth, the old saying “if it moves, tax it!” is the order of the day, which will become more and more apparent to a beleaguered Canadian public. A good ballot question for the federal parties would be: What have you got coming down the road besides new tolls?

TAXING THE CONSPICUOUS CONSUMPTION OF THE RICH SIGNALS VIRTUE BUT IT RAISES LITTLE REVENUE AT RELATIVELY HIGH COST.