Opinion

Tax reform the first true test for Trudeau

The government's tax clamp-down could spoil the Liberals' 'innovation' branding and give 'Main Street' back to the Conservatives.

Prime Minister Justin Trudeau, left, and Finance Minister Bill Morneau are facing blow-back from the Liberal caucus and a sustained attack from the opposition Conservatives over a plan to close off options that business owners sometimes use to lower their tax rate. The Hill Times photographs by Jake Wright, Sam Garcia

PUBLISHED :Wednesday, Sept. 6, 2017 12:00 AM

OTTAWA—Is Justin Trudeau’s government truly vulnerable for the first time? Failure to deliver on electoral reform, a badly broken deficit promise, and even a $10-million payout to Omar Khadr have had to date no real impact on his team.

But what looks like an ill-conceived tax-reform package—potentially drafted by officials who have never actually run a small business and who have guaranteed publicly funded pensions—seems to be causing disquiet in Liberal ranks. Numerous reports suggest Liberal Members of Parliament across the country have been taking fire from a variety of constituents who aren’t happy about the Liberal tax package. Finance Minister Bill Morneau did a call with a group of MPs last week and it looks like this discussion will carry over into the Liberal caucus meeting in Kelowna, B.C. If there isn’t any movement in British Columbia, I am sure the Liberal cabinet will get an earful when its members travel to St. John’s, N.L., next week.

What makes this issue different from other ones the government has grappled with? It has now transformed itself from a story of tax fairness as portrayed by Morneau to a pocketbook one felt by a large cross-section of people. Many of those people are Liberal supporters who are scratching their heads in wonderment at a move that looks to come right out of a tone-deaf Department of Finance memo. A move designed to stick it to the one per cent has dung flying across a bunch of cohorts.

Tax fairness is only believable when people think it is actually fair. Many Liberal MPs seem to be moving away from that view, and it looks like the only matter so far in the life of this Trudeau government that has made them nervous.

  

Liberal MP Francis Scarpaleggia told the Toronto Star at the end of August that he had been getting an earful from small-business owners about the government’s planned tax reforms. The Hill Times photograph by Jake Wright

Caucuses do get skittish from time to time. What the prime minister will look to do is determine: is this normal angst that comes with a controversial policy, or is it a special warning he must heed? He is not going to want to do something that gives “Main Street” back to the Conservatives, particularly in places like Ontario where voters provincially seem to be getting irritated with another Liberal leader’s fondness for taxes.

Also, the prime minister will look to assess brand impact and brand confusion. The prime minister has not only positioned himself, as most of them do, as the guy who cares about the middle class, but as the entrepreneurial innovation guy. Making people who make more money pay more taxes is certainly popular, except among those who have to do it. However, if you are trying push entrepreneurship and innovation, creating a system where the government overly restricts how a businessperson should invest, or directing that behaviour at the behest of the government’s political agenda is a bit old school. So much for the sharing economy if the only winner is the Canada Revenue Agency!

It has always struck me as strange: if a government wants to be innovative, why does it choose to be punitive? Entrepreneurs don’t feel encouraged when they are told they have to pay more taxes, which can cause them further strain and enhance the risk they manage. The political benefit is optics

But what is the real beneficial public policy outcome? The finance minister would argue that it is closing tax loopholes and putting more money in the treasury for the public benefit. “I am Ottawa and I know best” is not the strongest argument for effective public administration.

  

Justin Trudeau has demonstrated political skill in the past by acknowledging wrongs or abandoning bad ideas that could be politically damaging. He has shown he can be pragmatic and not tone deaf. What will he do here?

Tim Powers is vice-chairman of Summa Strategies and managing director of Abacus Data. He is a former adviser to Conservative political leaders.

The Hill Times