Conservatives have proposed a taxation review — it’s about time

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Taxation policy is critically important since it intersects with the economic and social policies of the government, with the raised funds supporting programs such as social safety nets, pensions and income re-distribution, as well as critical infrastructure.

Politicians often use tax policy to advance their agendas by pulling various levers like changing taxation rates, adjusting how taxable income is calculated and introducing new taxes. Balancing taxation, economic and political policies is very tricky. I call it the Goldilocks Principle, or getting it just right (yes, I know, that phrase is used in a lot of other disciplines too).

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The current federal government has failed miserably with the Goldilocks Principle as it relates to taxation policy for a number of years. From raising tax rates on so-called high-income earners, relentlessly going after small businesses, introducing flawed amendments to the Alternative Minimum Tax and now the capital gains inclusion rate increase.

The government has been pouring lots of time and energy into its messaging about the capital gains measure by saying it only applies to 0.13 per cent of people (a ridiculous and misleading falsehood) and that it is necessary for “fairness” (an overused phrase to justify its need to raise tax revenues to cover its ever-increasing spending), as well as comparing the taxation rate of a nurse to that of an investment banker, who apparently only earns capital gains and stock options, which, of course, isn’t true.

Finance Minister Chrystia Freeland also continues to use class-warfare messages to suggest the measure was necessary. Her social media account as well as those of Prime Minister Justin Trudeau and many other people friendly with the Prime Minister’s Office have been relentless in spreading false and divisive messages.

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Some government-flag-waving academics even go so far as to suggest the capital gains inclusion rate increase is a necessary measure to tackle income inequality, and that if people like me — who apparently don’t provide any other alternatives — oppose the measure, then we don’t care about income inequality.

I have one word for that assertion: hogwash.

Hard work should be rewarded, not punished, while the government provides the appropriate programs to ensure the vulnerable and needy are taken care of. And by vulnerable and needy, I don’t mean people who are simply envious.

As far as an alternative, I have a simple suggestion for that, too: reduce spending, get our country’s finances back in line, reduce personal tax rates, eliminate corporate subsidies (such as the ridiculous electric-vehicle supply chain grants that total more than $40 billion so far), look for ways to simplify our income tax statute and administration, and explore measures to improve our country’s productivity emergency, so that our overall population benefits from the improvements.

A lot of these suggestions could be taken care of by having the country engage in income tax review and reform. Many in the tax profession — including me — have been calling for this for years.

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After the release of the capital gains increase legislation last week, I spent dozens of hours reviewing the material with colleagues. I taught a couple of courses on the material as well. It’s horrifically complex. Canadians have until next week to decide whether or not they will trigger gains on their properties before the new law applies. The entire rollout, messaging and timing of this measure have been embarrassing.

One good thing that came out last week, though, was that the opposition Conservative Party came out with a statement opposing the capital gains inclusion rate increase. It also released a 15-minute video about how poor our economy is performing and what needs to happen, including a promise that the party would, within 60 days of taking office, launch a Tax Reform Task Force to implement lower taxes on work and production, simplify tax rules, cut corporate welfare and reduce the share of taxes paid by the poor and so-called middle class.

I love that commitment to tax reform. Obviously, the devil will be in the details, but tax reform is long overdue. Our tax statute is very much a patchwork quilt of complexity. It badly needs modernization and simplification.

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As the legendary Brazilian soccer star Pele once said, “Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do.”

As a country, we need to get back to encouraging and rewarding hard work. Without such rewards (such as reduced inclusion rates on capital gains, competitive personal tax rates compared to our neighbours and a much simpler income tax system), I’m convinced that we’ll continue to see successful people leave Canada (or shun coming to Canada).

Canadians, let’s get to work.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimmoody.

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