Liberals defend tax ‘fairness’

No budging on curbs against businesses and professionals seeking to lower rate

ST. JOHN’S, N.L.— The federal Liberal government is digging in its heels over controversial proposals to close tax “loopholes” that have angered small businesses, professionals groups representing medical doctors, along with some premiers and even Liberal MPs.

As the federal cabinet emerged from the first day of a working retreat to sift through priorities for the fall parliamentary sitting, it was clear the government will stand firm on measures designed to curb the ability of incorporated small businesses and professionals to shift income around to lower their tax rate.

Finance Minister Bill Morneau said Canada is experiencing the highest economic growth in a decade, along with good job creation numbers — 375,000 jobs created in the past year — and the government is intent on ensuring that the benefits of that economic growth “translates to positives for all Canadians.”

Morneau said he would “of course” be willing to make changes if there were suggestions on how to improve the implementation of the changes, proposed in July.

But he stuck to the government’s line that the moves, now the subject of national consultations, are necessary to ensure high-income earners do not have more tax advantages than other Canadians.

Morneau said there’s been “much misinformation” about changes that have won the support of Canadian nurses and the Canadian Labour Congress, and he downplayed how many people would be affected.

“The Canadian Federation of Independent Business tells us that two-thirds of business owners earn $73,000 or less. For those business owners, the tax changes that we’re putting in place can’t impact them.”

He said measures to address “passive investment income” — initially designed to allow incorporated business owners to protect money to invest in growing their business — affect only those earning more than $150,000 annually. “And of course, it provides much more advantage as you earn much more. So, those are the facts that we need to get out to Canadians.”

Morneau is about to embark on a harder sell of that message starting this week, with speeches planned to the St. John’s Board of Trade and small business owners.

A senior government source told the Star the Liberals have also tested public opinion on the proposals and have found that once the measures are explained as part of a tax “fairness” package, Canadians support them, in the same way as they supported raising taxes on the wealthiest Canadians to pay for an enhanced Canada Child Benefit.

The source said the Trudeau government has no intention of backing down on the proposals, in fact it believes they are necessary to pay for “the kind of society” and the “social contract” that Canadians believe in.

Although increased government revenues are the inevitable result of economic growth, Morneau said he will continue to run deficits as the government rolls out its long-term infrastructure spending plan over the coming decade. Morneau said his measure of fiscal success is whether the government can continue to reduce the ratio of debt-to-GDP, not deficit reduction, and he hinted broadly that those numbers will be rosier than expected.

“We expect that we’ll be able to do even better than we might have thought in the past in terms of our ability to manage that. That’ll be our continuing measurement tool.”

Morneau gave cabinet an update on the latest economic numbers Tuesday afternoon. In the morning, Canada’s chief statistician gave cabinet a rundown on the last two census reports and another due Wednesday on income levels.

Morneau’s defiance came after cabinet got an earful from Newfoundland and Labrador’s Liberal premier about the tax changes.

Premier Dwight Ball told reporters the federal government needs to clearly explain the “consequences” of its proposal.

The tax changes, announced in the dead of summer in July, have outraged the Canadian Chamber of Commerce, the Canadian Federation of Independent Business and many physician groups who view the tax advantages of incorporation as part of their compensation package, and a way to save for retirement.