The governing Liberals ‘will pay a heavy political price,’ if they don’t introduce a new wealth tax, said NDP finance critic Peter Julian.
Finance Minister Bill Morneau (Toronto Centre, Ont.) said on July 8 that the government was on track to run a $343-billion deficit this year alone, as the government continues to borrow and spend to keep households and businesses afloat amid the COVID-19 pandemic.
Both the federal Liberals and NPD have promised to levy new taxes on Canada’s wealthiest residents. The NDP has called for a tax on the wealthiest one per cent of Canadians, while Mr. Morneau’s mandate letter from the prime minister instructs him to introduce a new tax on luxury boats, cars, and personal aircraft, and to do an analysis to “ensure that wealthy Canadians do not benefit from unfair tax breaks.”
The governing Liberals were slow to introduce new legislation when the forty-third Parliament began, and the COVID-19 pandemic sidelined the legislative process in mid-March. The House is now in summer recess.
“We need to start taking action on the revenue side, so that we can continue to maintain services and support through the pandemic, and look to enhance public investments coming out of the pandemic,” Mr. Julian (New Westminster-Burnaby, B.C.) said in a July 10 interview.
On July 8 four non-profits released a statement of their own calling for a wealth tax.
“Canada should immediately bring in legislation to tax the extremely rich as a means to not only raise revenues, but curb worsening inequality,” read the statement signed by the Broadbent Institute, Canadians for Tax Fairness, Resource Movement, and Leadnow.
The July 8 economic update showed a federal debt over $1-trillion and a deficit of $343-billion. It also showed that the federal debt-to-GDP ratio, which the Liberals have often touted as a key financial marker, is expected to rise to 49 per cent in fiscal year 2020-21, up from 31 per cent the year prior. GDP is expected to shrink by 6.8 per cent this year before rebounding by 5.5 per cent next year.
Mr. Julian asked the PBO to estimate the potential revenues from a one per cent tax on families with a net wealth over $20-million. Released July 8, the PBO estimated that 13,800 Canadian economic families would be subject to the tax, and it would net $5.6-billion in revenue in fiscal year 2020-21. Administering the program would cost an estimated $113-million, or about two per cent of the total projected tax revenue.
The SFS showed the top one per cent of Canadian families held 13.7 per cent of total wealth, whereas the HFD reported that number at 25.6 per cent. The report said the discrepancy is “likely due to sampling and non-sampling errors, especially higher survey non-response among high-net-worth families.”
The PBO measured family wealth in the report “in terms of marketable net worth: the amount of money left to a family if it liquidates all its financial and non-financial assets and paid off all its liabilities.”
The report took into account the likely behavioural changes that would result from a wealth tax. The PBO assumed that wealthy families would manage to reduce their wealth by 35 per cent, based on adjusted findings from the U.S. Internal Revenue Service.
For Aaron Wurdrick, head of the Canadians Taxpayers Federation, the likely behavioural response would make a prospective wealth tax extremely hard to implement, and likely render it counterproductive.
“Its not a simple matter of, we’ll raise taxes on the rich and they’ll pay it. The rich have a lot of resources and they tend to use them to minimize their tax burden,” Mr. Wurdrick said. “Because they stand to lose a lot, even with a small increase in tax, they will spend a lot of money to avoid paying more tax. So you’re kind of chasing your tail.”
Mr. Wurdrick said he fears wealthy families would rearrange their finances to reduce their tax burden, resulting in an overall reduction of federal revenues.
“I’m less concerned about the impact on the rich themselves. They’re going to be fine whether or not they have to pay a little more tax. But I am concerned about what happens to the rest of us if we lose that revenue. Because it’s a lot to make up. It only takes a few really rich people to rearrange their affairs or leave and that leaves a real big fiscal hole but the rest of us have to end up paying,” he said.
During Question Period on July 9, NDP Leader Jagmeet Singh (Burnaby South, B.C.) asked Prime Minister Justin Trudeau (Papineau, Que.) if the government would consider imposing a wealth tax similar to that which was outlined in the PBO report. Mr. Trudeau did not answer the question directly, but said “everyone must pay their fair share of taxes” and highlighted that the government raised taxes on wealthy Canadians when they were first elected in 2015.
Polls suggest that Canadians are largely supportive of Mr. Julian’s proposal for some kind of wealth tax. In May 2019, 67 per cent of Canadians supported or somewhat supported a wealth tax, according to an Abacus study commissioned by the advocacy group North 99. In late May 2020, Abacus did another poll commissioned by the Broadbent Institute that found 75 per cent of Canadians support a wealth tax. The poll found majority support in all parties, regions, and age groups. Just 13 per cent of Canadians said they oppose a wealth tax.