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COMMENTARY: Morneau needs to slow down tax reform process


Plans to reform a tax system which hasn’t had a major overhaul in almost 45 years is proving to be a political minefield for the Trudeau Liberals and the government has only itself to blame for the way it has rolled out those proposed changes.  

For one thing, it chose the lazy days of summer as its brief window for consultation. How convenient when dealing with such complex rules and regulations.
Finance Minister Bill Morneau has clearly demonstrated his political naiveté by the very inflexible tone he’s demonstrated in trying to sell a complex set of sweeping changes that are open to multiple interpretation. They are reforms he says that are designed to create tax fairness and close those loopholes that have allowed some high income professionals to benefit simply through incorporation.
At the centre of the issue is something called income sprinkling which allows family members to pass on income to those in lower tax brackets. The federal government also wants to close loopholes not available to salaried workers by changing the way it taxes private corporations in relation to capital gains and "passive" income. The new rules largely erase any advantage professionals gain from using a private corporation.
According to Ottawa insiders, the proposed new regulations were not the brainchild of the finance minister, but those of Finance Department bureaucrats who tried unsuccessfully to introduce radical tax changes under the Harper Conservatives.
Obviously, the Tories were fearful of the political implications of going after higher income Canadians. It appears that the prime minister and his cabinet colleagues didn’t even consult with members of the Liberal caucus on the tax changes and many Liberal MPs were caught flat-footed when they returned to their constituencies for the summer break.
As a result, many Liberal MPs were ill-prepared to face the barrage of questions from small business groups, farmers and professional groups like doctors.
As some critics have rightly suggested, the government appears more intent on looking for a tax grab to reduce its growing deficit rather than creating tax fairness. Most Canadians would admit that there are indeed inequities and unfairness in our tax system and a need to shore up some loopholes that give some high earners an unfair advantage.
Why not ensure that the Canada Revenue Agency is given the teeth to go after such things as offshore accounts and tax havens, stock option deductions and the hundreds of billions of dollars in cash being hoarded in large corporations.
We can only hope that at the end of the day, Morneau and company, will slow down its process, listen to what Canadians are saying, and carefully craft tax system reforms that will be phased in over time.
As many financial experts have surmised from their interpretation of the tax proposals, they will simply punish those trying to foster entrepreneurship and in turn jeopardize future economic growth.

Geoff deGannes is the past chairman of the Tantramar Radio Society. His daily commentaries can be heard on 107.9 CFTA.
 

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