Kim Moody: Politicians know that robbing Peter to pay Paul means they can always rely on the support of Paul.
Tax and politics are like wine and cheese: they are inextricably linked and impossible to do one without involving the other.
For example, “tax the rich” or “it’s not fair that the rich have all the tax breaks” are often rallying cries for those left of centre. Even if you show them how much tax the so-called rich are paying, they will often keep trumpeting their rallying cries. It would often be more intellectually honest for such people to simply say, “We want the rich to pay all the tax.” Crazy, sure, but more honest.
Another silly opinion is that the solution to Canada’s fiscal problems is to “tax all the money that is sitting offshore.” For sure, we should chase pots of gold and rainbows that don’t exist. Nutty, despite all the “studies” that certain think tanks regularly pump out.
Ideally, politics and ideology should be minimized when introducing taxation policy. Without such minimization, taxation policy can quickly become nutty. Here are some recent examples, both federally and provincially.
1. The 2016 increase to personal taxation rates by the Liberals, which promptly introduced a new top-end bracket with a four percentage point increase upon taking office. This pushed marginal rates at the high end to more than 50 per cent in many provinces. There was no sound policy reason to do so, but it was ultimately all about politics. It didn’t raise taxation revenues as predicted; it was a revenue loser.
2. The new prohibition on deductions for short-term rental owners who operate in a municipality that prohibits such rentals. This measure is very dangerous since it puts drug dealers and many other illegal business operators on better footing than those evil short-term rental operators (drug dealers et al would be allowed to deduct their business expenses for tax purposes if they chose to report their income … which, of course, many do not). This measure is all politics. And, frankly, one of the dumbest rules in tax law.
3. The new capital gains inclusion rate increase, which was cloaked around having the so-called rich pay just a little bit more, dealing with intergenerational fairness and ensuring employees are treated just as fairly as those who realize capital gains since the latter have a “capital gains advantage.” Ugly politics and a simple tax grab.
4. British Columbia Premier David Eby recently promised to increase the speculation tax on real estate (first introduced in 2018) if he gets re-elected during this month’s election. This tax is supposedly in place to try to turn vacant homes into usable housing. Other municipalities have followed suit. Ditto with the federal government and the ridiculous Underused Housing Tax.
Are these taxes effective? Doubtful. For example, the B.C. government said it collected $81 million in 2022 from the tax (which doesn’t account for the administrative costs). Minister of Finance Katrine Conroy said the money raised was used to build long-term rentals. Yeah, right. I’d love to go pay a site visit to those long-term rentals. Instead, this pittance of revenues is a nuisance and a drag on productivity.
5. Speaking of the B.C. election, the Conservative Party of B.C. recently promised to abolish taxes on those who receive tips in the hospitality industry. That appears to be following promises by the presidential candidates in the United States. Frankly, this is silly. If you abolish tax on tips, how about abolishing tax on other taxable benefits that are received by others outside the hospitality industry? That would only be fair, right?
6. The Government of Canada in 2022 introduced the Select Luxury Items Tax Act to charge buyers of certain luxury cars, boats and airplanes an additional tax to the extent the price of the item was above certain thresholds. Finance Minister Chrystia Freeland, in introducing this new tax in the 2021 federal budget, said, “It’s also fair to ask those who have prospered in this bleak year to do a little more to help those who still need help. That is why we are introducing a luxury tax on new cars and private aircraft.”
In its first year of implementation, the government raised only $137 million (less than budgeted) and incurred $19 million to administer the new tax. Again, a pittance and pathetic politics.
7. The proliferation of personal tax credits — the children’s fitness credit, arts tax credit, transit pass tax credit of years past — are examples of blatant politics. Thankfully, these credits have disappeared, but only to be replaced by other measures by Justin Trudeau’s government, such as the teachers supply credit.
The list is almost endless, so I could go on and on, but as the famous playwright George Bernard Shaw once said, “A government that robs Peter to pay Paul can always rely on the support of Paul.”
Political parties and their politicians know this all too well. In tax, especially lately, there are many measures that fall into this category or are simply political pandering. I know it will never be eliminated, but it would be great if the introduction of simple and silly politics into our tax system was reduced.
Post Link: (https://financialpost.com/personal-finance/taxes/silliest-politically-motivated-tax-policies-canada)
