By Jack Mintz, December 2, 2021
New taxes are in the wind. The Liberal election platform called for $70 billion of new spending over five years, to be partly financed by $25 billion in new revenues from “the rich,” corporations and tax cheats. Outside politics, the C. D. Howe Institute has called for higher GST and capital gains tax rates while the Broadbent Institute wants a new wealth tax.
According to the IMF, consolidated federal, provincial and local government spending in Canada hit 48 per cent of GDP this year — which is actually down from 52 per cent in 2020, its highest since 1992. Meanwhile consolidated government revenues are 40.8 per cent of GDP, leaving a deficit of about 11 per cent of GDP. The question needs to be asked: given the current level of fiscal bloat, is it really necessary to raise taxes to reduce the deficit?
If there are going to be new taxes to fund new programs, they will likely be narrow-based taxes rather than the broad tax hikes that are unpopular with voters. Taxes that typically fall on a small segment of the population will not cause much stir. As French economist Anne Robert Jacques Turgot wrote to British philosopher David Hume in 1766, the aim in taxation is “to pluck the hen without making it cry.”
A good example of a narrow-based tax is the luxury tax introduced in the last federal budget, following the example of one of Canada’s most astute hen-pluckers, the B.C. government. First introduced by the NDP in 1997 but eliminated in 2010 with the introduction of the HST, the B.C. luxury car tax was reintroduced in 2013 after the HST was canceled. At the moment, B.C.’s provincial sales tax is seven per cent on passenger vehicles costing less than $55,000, the same as for other taxable products. But the car tax then climbs through five higher rates, reaching 15 per cent of the sticker price for cars costing between $125,000 and $150,000 and 20 per cent on those over $150,000.