Canadian business leaders want Senate to change proposed luxury tax

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The luxury tax would apply to new automobiles and aircraft that cost more than $100,000 and ships selling for $250,000 or more.Christopher Katsarov/The Globe and Mail

Business leaders urged senators to address concerns that a new luxury tax on automobiles, boats and planes could lead to thousands of job losses in Canadian manufacturing.

The House of Commons is due to give final approval on Thursday to Finance Minister Chrystia Freeland’s budget bill C-19, which includes the tax. The third reading vote will send the bill to the Senate, where several committees are already conducting preliminary studies of the bill.

The luxury tax emerged as the most controversial element of the 440-page budget bill. Some tax fairness advocates hailed the measure as a way to force wealthy Canadians to contribute more to government services. However, business and labor leaders have warned that it will hurt working-class and middle-class people who depend on the high-end products targeted by the tax for manufacturing and tourism jobs.

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The luxury tax would apply to new automobiles and aircraft that cost more than $100,000 and ships selling for $250,000 or more. The tax rate will be the lesser of 10% of the total value of the vehicle or 20% of the value above the threshold.

A report released last month by the Parliamentary Budget Officer said the tax would reduce sales by more than $600 million a year.

Late Tuesday, MPs voted unanimously in favor of an NDP amendment to the budget bill that gives the government the option to delay the planned September 1 implementation date for the new tax, but only by regarding airplanes.

Several business leaders told senators on the National Finance Committee on Wednesday that while the amendment is welcome, the Senate should further mitigate the impact of the tax.

The luxury tax has emerged as the most controversial element of Finance Minister Chrystia Freeland’s 440-page budget bill.Justin Tang/The Canadian Press

Sara Anghel, president of the National Marine Manufacturers Association, warned senators that the tax could cost hundreds, if not thousands, of Canadian boating jobs, according to a research paper by economist Jack Mintz from the University of Calgary.

“This is a complete assault on the boating industry,” she said.

She also asked why this week’s amendment only applied to the aviation sector, and not to automobiles or boating. “The tax will hurt the middle-class families the government is trying to help.”

The committee heard similar concerns from Mark Agnew, senior vice-president of policy and government relations at the Canadian Chamber of Commerce, and Aerospace Industries Association of Canada president and CEO Mike Mueller.

Amendments proposed by the Conservatives and the Bloc Québécois aimed at addressing business concerns about the luxury tax were rejected by Liberal and New Democrat MPs.

The majority of senators sit as independents, so it is unclear how the chamber can vote. The Conservatives are the only national party represented in the Senate, with 16 members in the 105-seat chamber. There are currently only 88 senators, due to 17 vacancies.

Boats are launched at the Kawartha Lakes Marina in Bobcaygeon, Ont., May 16, 2020. Industry groups have called on Ottawa to drop plans for a luxury tax or limit its effects.Fred Thornhill/The Canadian Press

On Wednesday, several senators on the national finance committee made comments that appeared sympathetic to the issues raised by the business groups.

“I’m troubled and worried by what I’m hearing,” said Senator Clément Gignac, former Quebec cabinet minister and chief economist at National Bank. He asked speakers to offer specific suggestions for amendments to the budget bill.

He told The Globe and Mail after the meeting that it is premature to discuss potential amendments until the Senate receives the final version of the bill from the House.

While it’s rare for the Senate to amend a budget bill, the Library of Parliament notes that it did so in 2016 and 2017.

Adrienne Vaupshas, ​​spokeswoman for Ms Freeland, said in a statement on Wednesday that implementing the luxury tax “remains a priority”. She did not say whether the government intended to delay the implementation date for the aviation sector.

NDP finance critic Daniel Blaikie, who moved the amendment giving the government that option, said he hopes it will give finance department officials more time to address concerns that have been raised.

But he said he and his party continued to support the principle of a luxury tax.

“It’s not meant to be a panacea,” he said. “It’s one of many things we can do to try to make sure that the highest and wealthiest earners in Canada pay their fair share.

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