The federal government revealed new plans and promises during its Throne Speech, and while there are some wins for dealers — a tax on luxury goods could impact high-end vehicles.
Weeks after the resignation of the finance minister and the prorogation of Parliament to “reset the agenda,” the Governor-General delivered the federal government’s eagerly awaited Throne Speech.
It is no secret that the government was embroiled with yet another scandal and pundits argued about the motives behind shutting down Parliament during a global pandemic. Particularly, considering that prorogation is the oldest trick in the book used by many other governments to avoid scrutiny, but I digress…
Beyond the political chess game in Ottawa, the Throne Speech effectively opened a new session of Parliament and outlined the Liberal government’s priorities going forward.
In the weeks leading to the speech, the government publicly mulled over using the Throne Speech to unveil an ambitious plan to reshape Canada’s future and a massive green recovery package. Alas, the continued response to COVID-19 took the centre-stage amid the resurgence of cases and an ongoing second wave in many parts of the country.
In true fashion the speech was full of promises, with many of them aspirational at best — such as the ambitious promise to create one million jobs or to develop a national childcare program.
However, in this minority context it is unlikely it would bring down the government, as it provided plenty of room for negotiations with other parties in the lead-up to a fall economic update or budget. In fact, it appears that the NDP has reached an agreement with the Liberals following the passage of a bill providing a 10-day paid sick-leave to workers across Canada.
For businesses and dealers, the main takeaway was the commitment to extend and expand flagship programs such as the wage subsidy program and the Canadian Emergency Business Account.
On the issue of climate change, the government pledged to continue incentive programs to support the adoption of zero-emission vehicles and investment in charging infrastructure.
It also signalled more fiscal spending fuelled by masses of debt as interest rates remain at record lows. The speech clearly mentioned that “now is not the time for austerity,” indicating there would be no fiscal restraint in the near-term and perhaps in the next couple of years to support a struggling economy.
That said, beyond lip service there was no emphasis on fiscal sustainability nor fiscal anchors or even a plan to manage the ballooning national debt in the future. With the deficit increasing to stratospheric levels, it is just a matter of time before the new finance minister starts making some very difficult trade-offs or increases taxes.
An idea that was floated around in the Throne Speech was a rather unclear pledge to “identify additional ways to tax extreme wealth inequality.” And while the government promised to conclude work to limit the stock option deduction and tax web giants such as the Googles and Facebooks of this world, it could potentially include other forms of wealth taxes, such as a tax on luxury goods like high-end vehicles as previously proposed on the Liberal electoral platform.
This would be a huge blow to the auto industry in Canada that has been severely impacted by the crisis, despite the relatively strong recovery since the reopening this summer.
The arbitrary nature of a luxury tax makes it extremely ineffective. Evidence shows that the sale of luxury goods is highly sensitive to price. Consumers in response to a luxury tax will often switch their consumption to lower-priced products, buy other luxury items that are not targeted by the tax, or stop buying luxury goods outright.
This type of behavioural response was experienced in the United States in the 1990s, when the Clinton administration imposed a similar tax on boats, aircrafts, and cars. It did not generate the revenues intended but it ground the boating industry to a halt, resulting in significant job losses. The tax was subsequently repealed by Congress within a few years.
Taxation should never be imposed arbitrarily, and while the government goes on this soul-searching about revenue generation post-crisis, there should be very careful consideration of how taxes affect taxpayers.
Overall, the Throne Speech, although not perfect, laid out the foundations in the new COVID era. It is the hope that “politicking” in Parliament does not get in the way of delivering true assistance to Canadians during these difficult times.
