Liberals play rope-a-dope on tax reform issue

AS CONSERVATIVE BLOWS RAIN DOWN OVER TAX REFORMS, LIBERALS ARE BARELY PUTTING UP A FIGHT

Justin Trudeau has surprised us in the boxing ring before, so perhaps his question period strategy is rope-a-dope. Maybe the Conservatives will fatigue themselves swinging away and hitting nothing but fresh air on the tax reform issue.

Still, on Tuesday it looked very much like the blows were landing on the prime minister and his finance minister, Bill Morneau.

Pierre Poilievre, the Conservative finance critic, was at his pesky best. “Why is the bill on Main Street higher than the Bill on Bay Street?” he asked, an oblique reference to Morneau Shepell, the finance minister’s human resources company.

The juxtaposition of Trudeau’s family trust and Morneau’s wealth with the mom-and-pop business owners the Conservatives say will be whacked by the government’s tax reforms is a narrative that the Liberals have not even tried to counter.

Trudeau and Morneau have not wavered from the defence that the system favours the wealthy, who use private corporations as a way to pay lower taxes than the middle class.

Poilievre showed quick wit by jumping on a comment by the beleaguered-looking Morneau, who said the government can do two things at the same time: help small businesses to invest and keep tax rates low.

“They are arguing two things at the same time: protecting the finance minister’s family fortune and the prime minister’s family fortune,” said Poilievre, to cheers from his own side and silent sighs from the Liberals.

Despite the provocation, the Liberal line was constant, if less inflammatory than in recent days — the government is not for turning. The “rich” will pay more.

A fascinating insight into the motivation behind the move — or at least an explanation as to why the Liberals are doubling down on what seems an increasingly bad idea — came in the New Yorker last month, where a profile of now former Donald Trump strategist Steve Bannon revealed his friendship with Trudeau principal secretary Gerald Butts. The article suggested Bannon had been converted to an idea that polling suggested would be popular among Trump’s base, if not the Republican establishment: higher taxes on the rich. The New Yorker said Butts had told Bannon: “There’s nothing better for a populist than a rich guy raising taxes on rich guys.”

Trudeau and Morneau are now testing that theory in Canada.

Of course, this ideological crusade is not new.

Trudeau raised the top rate of income tax to 33 per cent last year but Finance Department figures suggest many of those affected simply moved their wealth into private corporations. The latest move is an attempt to follow the money.

The mistake the government made was to launch a consultation period that ends on Monday. Since the Liberals did not define precisely who would be hit, they allowed the Conservatives to do it for them.

Tory MP Mark Strahl suggested the government is “threatening to kill family farms” with its new measures.

Once the phoney consultation period is over, the Liberals will come off the ropes and Morneau will be able to put forward revised proposals that, presumably, do not include plans to bankrupt the nation’s farmers. Both Morneau and Trudeau referred to the fact that the top two per cent of private corporations hold 80 per cent of the passive investment assets. This is clearly the target and any enthusiasm to go much beyond the most wealthy has likely been dampened by the public backlash.

Perhaps the rope-a-dope strategy will work. It’s a reasonable bet the indignation among small business owners — who feel they’ve been unfairly targeted by a bunch of pampered bureaucrats with index-linked pensions — may abate once they discover they won’t feel the pain. It’s even possible the Liberals get a bump in the polls thanks to the politics of envy.

But even if the tax reform headlines recede, as they surely will, the Trudeau Liberals are much diminished by the affair.

Business no longer trusts this government, and we may yet see a flight of capital.

The proposals will further exacerbate a tax competitiveness differential with the United States that will widen still further should Trump successfully introduce tax cuts that would reduce the top rate and lower taxes on dividends and capital gains.

Tax fatigue is not limited to the top earners.

A Fraser Institute study, released Tuesday, suggested 81 per cent of middle-income families in Canada are now paying more in taxes than they were before the Trudeau government came to power — although, the study did not take into account the impact of the Canada Child Benefit, which would significantly reduce the $840 per family average increase calculated by Fraser.

Beyond the specifics of the small business tax reforms, or the precise amount of additional tax being paid by families, Andrew Scheer, the Conservative leader, is likely to gain traction with his claim that Trudeau has a spending problem that he tries repeatedly to solve by finding new revenue streams.

The tax reform episode is a shabby one for Trudeau. He has attempted to use intolerance and resentment as weapons by demonizing the wealthy on the basis of income.

In doing so, he has come across as detached, with no apparent appreciation for the anxieties experienced by people who put their personal assets on the line as collateral.

Power inevitably leads to arrogance — leaders become remote from the range of existence. But to be so out of touch after less than two years would be remarkable, even for a party that tends toward hubris.