Luxury tax will damage manufacturing
Delivering on a campaign promise, the Liberals were eager to begin implementing policies that addressed growing income inequality in Canada. After all, the middle class is disappearing, and working Canadians are falling further behind each year as the wealthy grow more rich.
In response to this, a luxury tax was proposed with the intent to tax expenditures on luxury items like, new luxury cars and aircraft.
On the surface, it’s logical to tax those who are able to afford luxury items for leisure and hard to argue against initiatives that strive for fair taxation. But, a luxury tax has little to do with fair taxation, and even less with income redistribution, which is a sure way of addressing income inequality.
The fine print reveals the truth: the tax actually targets manufacturers who produce the items, not those who purchase them. No analysis was conducted to determine if the tax would reach intended objectives.
Statistics show that during the pandemic, there has been a sharp increase in sales of pre-owned and leased aircraft (5.2% since 2019-20, which is about 136 aircraft), while sales of new private jets has declined by 20%. Yet, the tax is only applied to new vehicles and aircraft.
Delving deeper, it becomes evident the tax would apply to a limited number of manufacturers, whose businesses rely heavily on production of aircraft.
Not only would these businesses carry the liability of paying the tax, but if the tax rendered them less competitive, consumers would turn to competitors; this would equate to loss of business.
Aircraft production is a strength for Canada, providing a solid foundation for recovery and jobs, and should not be punished in a misdirected effort that will target manufacturers and workers.
Rather than rushing to implement this tax, the government should conduct a comprehensive study, along with case studies. A similar tax was introduced in the United States on luxury yachts in 1990s. The tax decimated the boating industry, resulting in a loss of wellpaying jobs in communities that relied on this work. In its first year, the luxury tax actually cost the government more to administer than was recovered through taxes. Those who unjustly bore unintended consequences were workers, their families and communities. Wealth inequality was left intact.
The luxury tax isn’t just about jobs, it’s also about the impact on an industry in which Canada has been a world leader and globally competitive: aerospace. This sub-sector was heavily impacted by the pandemic. Recovery will be slow, and government has provided some support to boost the industry, but while the government gives with one hand, it takes away with the other.
The luxury tax would create a disincentive for business to operate in Canada. About 30,000 jobs have already been lost in aerospace; the proposed tax would decimate the industry and jobs along with it.
It is important aerospace remains a viable industry in Canada. One of the pillars of unionism is economic justice through reduction of income inequality, and to that end, the IAMAW supports fair taxation policies that aim to redistribute income. But, this policy is misguided. At worst, this proposed tax will only burden an already struggling industry.
The IAMAW calls on government to conduct a proper study of impacts. We urge the government to develop a policy that will reach the goal of taxing the wealthy, but let’s do so through measured, well-developed policies, and this luxury tax is not it.