Tax-reform surrender, served with extra cheese
Rarely has total capitulation been celebrated as triumphantly as it was Monday by the prime minister and his finance minister in a Stouffville, Ont., pizza restaurant.
Justin Trudeau attempted to convince the nation that it was always the government’s intention to menace small businesses with the prospect of hefty tax increases, then turn around and offer an across-the-board tax-cut sweetener.
Does he think our heads zip up at the back?
The small-business tax measures were introduced in the dead of summer with one eye on the billions in new revenue they might raise.
By contrast, the tax cut unveiled Monday will actually cost the treasury $2.9 billion over six years.
To be fair to the Liberals, they did campaign on the reduction in 2015, as well as a pledge to ensure incorporation was not being used to reduce personal income-tax obligations.
But they promptly ditched the commitment once elected. The 2016 budget had no mention of the promised cut to nine per cent, which was “deferred” indefinitely.
“It’s a big fat broken promise,” said Dan Kelly, president of the Canadian Federation of Independent Businesses. In a release Monday, Kelly said he welcomed the decision to “reinstate the promise.”
Trudeau suggested the Liberals were “very clear” that they would cut the small business rate once they had taken a look at the tax system. “It’s not the people who are the problem — it’s the system,” he said.
But it beggars belief that this was the plan all along. More likely, the cut was dusted off once it was apparent the tax reforms had been botched.
To recap, then: the Liberals ratted on a campaign promise to reduce small business taxes, then reratted in an attempt to buy back support from incensed small business folks.
The goal of the whole exercise was to narrow the gap between personal and corporate income taxpayers — but with the latest cut they have now widened that gap still further.
That is, unless the policy changes on passive investments that will be announced Wednesday clawback all the tax cuts that were announced on Monday. Then all the groups welcoming this bonanza will again be frothing at the mouth. Confused? You will be. Trudeau’s optimism was a tonic for many people fatigued by the dreariness of the later Harper years.
But he is borderline delusional if he thinks this tax cut is going to make everything better.
Cracks have appeared in the relationships that have made Trudeau’s first two years in office relatively smooth — with the media, with his caucus and with Canadians.
At the press conference in Stouffville, he insisted on answering questions reporters tried to direct toward Bill Morneau, “because you have a chance to speak with the prime minister.”
He deflected inquiries about potential conflicts of interest in Morneau’s private business affairs, saying the finance minister had acted on the advice of the ethics commissioner. But it was all a little creepy — a throwback to the days when Trudeau used to talk about himself in the third person.
The strains over the smallbusiness tax package have also shown up in caucus, centred on the unobtrusive figure of New Brunswick MP Wayne Long, the lone Liberal who voted against the tax package. It sounds very much as if tensions over policy, and unfulfilled ambitions on the backbench, are starting to bubble over.
After an early-morning caucus meeting, Long said Monday that “for the first time in a long time” there was a more collaborative tone.
“I always go back to my hockey analogies in tough times — you know, I was the president and part owner of the Saint John Sea Dogs. And you know, teams win when the third and fourth lines of teams can contribute, have, you know, a role to play and, most importantly, feel that they’re part of the team...”
Reporter: “Did (Morneau) thank you for your input?” Long: “No.” Perhaps the most conspicuous division that has emerged is between Trudeau and a sizable number of voters who previously supported him — his approval numbers have tumbled 12 percentage points in the past year, according to Nanos Research.
There is an Orwellian disconnect that resonates with ordinary voters. Here is an extremely wealthy man claiming he is increasing taxes in the interest of “fairness,” but that his “family fortune” is not going to be impacted by the move.
It’s a reminder that Trudeau and Morneau are not like them — and no amount of making other people poorer is going to make them more alike.
The prime minister was far from contrite but he did indicate the government has listened to its critics and ditched the proposal around the lifetime exemption on capital gains, which would have made it more expensive to pass family farms on to the next generation.
However, the policy cracking down on income sprinkling in private corporations stays.
In small businesses where family members “meaningfully contribute,” there will be no impact. But there will be a “reasonableness test” for adult family members to demonstrate they contribute labour or capital before they can be included for tax deductions.
That sounds a rather blunt instrument when it comes to assessing the role of spouses, particularly women, in contributing to small businesses.
But one supposes there had to be a vestige of the original policy in the redux version.
There had best be substantial modifications to the passive investment rules — the source of much of the outrage — or Trudeau and Morneau might struggle to find another small business willing to provide a backdrop for their political roadshow.