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Divide and Conquer? Manufactured Class Warfare

This parliamentary session is drawing to a close, and it has gotten very testy! 

From a political perspective, the economic consequences of the Liberal’s economic mismanagement have come home to roost.  ‘Budgets will balance themselves’, ‘I don’t think much about monetary policy’; ‘We need to borrow more so Canadians don’t have to’; We can’t let a good crisis go to waste’ . . . . .

I could go on with the jingoistic narratives, but they make my eyes roll.

Yes, the Prime Minister has never shown an inkling of economic thought in his nine years at the helm. 

But it’s not as though there is anyone on his front bench that acts as a devil’s advocate to restrain his fiscal aimlessness.  Au contraire!  You’ve probably seen the inane responses to any financial question asked of the so-called Minister of Finance.  Absolute blather.  I don’t think there are minds on the government’s front bench that subscribe to the notion of ‘responsible government’. 

Doubling Down on Fiscal Recklessness

It would be something if I could say that the Liberals are learning from their mistakes.   But that’s definitely not the case.  The latest shenanigans show more of a ‘doubling down’ on fiscal recklessness.

I’ve commented before on their pursuit of new tax revenues – to pay for their rapidly increasing government spending, rising deficits and government debt. 

The Minister of Finance deliberately left the capital gains inclusion rate out of the legislation that followed her budget announcement.  Allegedly, she was trying to ‘wedge’ the Conservatives on choosing to support the wealthy (0.13% of Canadians who would have to pay this tax, she says) vs. our approach on tax fairness. 

Over the past several weeks, there has been a stream of representations to Finance, trying to explain to the government the breadth of Canadians this change actually affects.  Some of those groups actually believed their input had an impact, and that there would be exemptions, or a withdrawal of the increase – as we saw in 2017. [See my commentary on how many Canadians will be impacted by this tax increase]

In the end, what she says is what we get.

Increased taxes. 

This affects all of us.  We all benefit from the economic growth of a robust economy

The graph below shows Canada’s Gross Fixed Capital Investment – adjusted for inflation.

Note the increased investment that coincides with lower capital taxes – and good-paying jobs and incomes and income taxes and payroll taxes all follow along.

(2008 – 2009 is the recession caused by the global financial crisis)

Retroactive Taxation

But the biggest problem I believe it represents is the end of trust in government, and how governments tax your income.

Let me give some examples: Many small businesses have reinvested in their firms over the years, rather than contribute to pension savings plans.  That re-investment – over a lifetime – will now face a higher tax hit.  Retroactive taxation is always a way for governments to lose the trust of the governed.  And trust of Canadians investing in their families’ futures and the future of this country have taken a serious hit.

The thing about investor confidence – it gets built slowly, and torn down quickly – so we will need some time to rebuild confidence in government.

Here’s an indication of the net amount of investment flows out of this country and into the US before and during this Liberal government (elected in 2015).

A Tax on Retirement

You may deal with this tax hit when your parents’ will has to be settled.  Again, a lifetime of saving is suddenly taxed at a higher rate, retroactively applied.  That means less for the families that were raised by parents who saved; but more for the government.

And – if you’re an investor, or have an RSP, TFSA with investments, or a pension plan – all of which hold securities in trusts (including real estate investment trusts) – your returns will be lower and your retirement income will be lower.  So much for retirement planning.

This is a tax on retirement.

Scorched Earth Taxation Policy

It is also a way of pulling forward tax revenue – because the government needs revenue badly right now.  That means that capital gains that would have been paid in subsequent years (because it would eventually have been due at the previous rate) will now arrive before the June 25 deadline for the old rates.

The government is leaving a ‘scorched earth’ policy for its successor.  There will be structural deficits and hampered income.  Oh boy.

Manufactured Class Warfare

Here’s a quote from Canada’s Finance Minister:

“Do you want to live in a country where those at the very top live lives of luxury, but must do so in gated communities behind ever higher fences, using private health care and airplanes because the public sphere is so degraded and the wrath of the vast majority of their less privileged compatriots burns so hot?”

The Honourable Chrystia Freeland, Minister of Finance (June 9, Toronto, YMCA)

This is a mind-boggling display of creating societal divisions:

  • Run an economy into the ground with policies that drive investment away and impede growth and destroy jobs
  • Overspend  — ‘a rich uncle will pay for everything’
  • Print money and debase the currency to paper over the overspend
  • Watch inflation drive people into poverty
  • Blame poverty on “the rich” – and leave that term undefined
  • Tax those ‘rich’ people more
  • Drive more investment away, and pretend you’re looking after the people you made poor.

More “Divide and Conquer” to Come

An election is still going to be a year away – and expect more ‘divide and conquer’ narratives that are just caustic constructs.

There is one imperative – replace this government. 

Here is a 15 minute video prepared by Hon. Pierre Poilievre, which hits the issue about tax fairness squarely.  It’s worth a watch!

Related Background

Greg’s Analysis of the Capital Gains Tax Hike
Greg’s Speech on the Fall Economic Statement