The Government Goes for Another Cash Grab – And is Probably Plotting More
Like most politicians before him, Prime Minister Justin Trudeau is not known for coming up with popular ideas.
One of the latest, unrolled in the 2022 Budget (under Bill C-19), is a new “Select Luxury Items Tax”. It imposes a tax on the sales of certain high-priced luxury items. These include vehicles and aircraft that are priced at over $100,000, and certain vessels priced above $250,000.
For those of us who don’t quality as the “super-rich”, this new tax on high-end splurges may not affect us. But it may be the “thin edge of the wedge” or “slippery slope” for another idea that he has repeatedly floated to the public for quite a while: It’s a one-time “Wealth Tax” on those Canadians who are extremely wealthy.
The “Luxury Tax”: Just a Prelude?
In fact, according to internal government documents, the “Wealth Tax” was being seriously considered in the run-up before the last Federal election. Prime Minister Trudeau apparently requested a personal briefing on the merits of proposing and imposing it. Evidently the idea was dropped at the time, since the Liberal party platform did not include it.
Next, there were rumblings that the 2022 Federal Budget would incorporate a Wealth Tax on certain categories of rich Canadians; but when the Budget was actually released to the public in the Spring of this year, it included only a vague “commitment to examine a new minimum tax regime” and promised “details on a proposed approach” in the Fall of 2022.
Another related proposal – also rumored but not implemented in the 2022 Federal Budget – was a minimum effective tax on high income. This would have seen the top 1% of earners (who make over $222,6000 per year) being taxed at a minimum 15% effective tax rate.
Taxing the Ultra-Rich
Now that the Luxury Tax is in place, why the added fixation on this Wealth Tax idea, that seems to keep re-appearing on the Liberal government landscape?
Answer: The opportunity for a huge government cash grab.
That’s because regular income taxes are calculated by taking only a percentage of an individual’s taxable annual income. In contrast, the proposed Wealth Tax being considered would assess a person’s total assets and liabilities – including investments, property, and debts.
So those with a net wealth over $10 million would be subject to a one-time tax of 3% on their total assets; those with net wealth over $20 million would be taxed at a 5% rate (although there have been different thresholds and formulas considered).
This kind of targeted taxation scheme would have a huge fiscal upside to the nation. For example, when applied to the assets of the tiny percentage of wealthy Canadians who qualify for that elite category, the proposed Wealth Tax could mean between at least $20 billion and perhaps as high as $60 billion in annual additional tax revenues for the Canadian government, depending on the tax percentage imposed.
What’s the Downside?
Among the criticisms of the Wealth Tax, is that it’s tone-deaf to the potential longer-term repercussions.
Some economists say that such a heavy-handed measure will only alienate those Canadians who are ultra-rich – even if they can technically afford it. They anticipate that those facing the hefty Wealth Tax will merely take their riches elsewhere, by leaving the country and taking their funds, investments, and businesses with them. This will prompt an indirect redistribution of taxes on those left behind, by forcing a higher tax burden on the less prosperous.
Support for these fears is seen in the fact that Wealth Taxes are not a common feature among the other countries in the world. Some countries have tried it, with disastrous results: France for example had to repeal their Wealth Tax when about 12,000 of its millionaires moved out the country in response.
Stay Tuned
Whatever the downsides may be, rest assured that the prospect of a new Wealth Tax has not totally disappeared. The lure of a one-time cash grab by the government, from the very small number of Canadians who can amply afford it, is undeniable. It’s an easy and relatively painless way to raise tens of billions of dollars. That’s billions!!
Although the one-time Wealth Tax didn’t make it into the 2022 Federal Budget, you can rest assured that the Liberal government’s eyes remain firmly fixed on the coffers of the very rich. Let’s see how long it takes for the idea to resurface yet again.
