Andrew Scheer
The Liberals are targeting local business
owners with a political campaign that plays up the politics of envy and
resentment, pitting one group of Canadians against another, dividing us instead
of uniting us.
What has struck me over the past year since
the Liberal government took office is that every time they see a problem, the
answer is always to raise taxes. When the Conservatives see an issue, a
problem, or an aspect in our tax system, we always look for ways to lower
taxes. This is the fundamental
difference between the Liberals and the Conservatives. (Hon. Andrew Scheer)
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Pierre Poilievre
Hon. Pierre Poilievre (Carleton, CPC)
-moved:
That, given the proposed changes to the taxation of private corporations
as outlined in the Minister of Finance's paper “Tax Planning Using Private
Corporations” will have a drastic negative impact on small and medium sized
local businesses, the House call on the government to continue, until January
31, 2018, its consultations on these measures.
He said: Mr. Speaker, I will be splitting my
time with the hon. Leader of the Opposition.
The government says it wants to avoid
unintended consequences from its proposed tax changes. Here is one. What if these proposals
simultaneously raise taxes and reduce government revenue?
Let us consider the government's new tax on
so-called passive income. Under the present system, when all is said and done,
small business earnings are taxed at the same rate as wages. The only
difference is timing. Assuming a 50% personal income tax rate, a wage earner
pays 50¢ on the dollar in the year it is earned. A business, by contrast, pays
15¢ in the year it is earned and the remaining 35¢ when she takes the money out
of the company. The government claims that this is allowing the business owner
to invest that 35¢ inside her company, growing a bigger nest egg than she would
if she had paid all the tax up front. This, according to the finance minister,
is unfair.
To prove it, the finance minister's
so-called consultation document has a table showing how much better off this
small business woman is from investing the after-tax proceeds of $100,000 of
business earnings versus investing the after-tax proceeds of $100,000 in wages.
In the first instance, the business owner has starting capital of $85,000, with
the small business tax rate being roughly 15%, in most provinces. As an
employee, she would have only $50,000 as starting capital.
The result is that if both she and her
employee had the same money and invested the after-tax proceeds, she, as a
small business owner, would have $62,000 at the end of a 10-year investment,
and the employee would have about $58,000, using the round numbers the
government provides in table 7 of its consultation paper. It is $62,000 at the
end of the day at the end of the 10-year period for the small business woman,
and $58,000 for the employee. It is not fair, right? However, there is one key
detail the finance department excluded from this table. In fact, the only
detail that matters is excluded, and that is who actually paid more tax, the
small business woman or the employee, after the 10-year period, assuming a 3%
rate of return, as the department's table does. The government omitted that
calculation altogether. It did not want people to know who paid more taxes at
the end of the day.
I had a respected tax modelling firm, headed
by Jay Goodis, the chartered professional accountant and CEO of Tax Templates,
do the math the government left out of the consultation paper. Let us break it
down. It is true that the employee paid more tax up front: $50,367, to be
exact. He then paid another $8,023 on the interest earned in the subsequent 10
years, for a total tax bill of $58,390.
The business woman, on the other hand, paid
admittedly less money up front: $14,400. She then paid another $5,412 on her
interest. So far it is true that the business person paid a little bit less.
However, at the end of the 10-year period of investment, when she took the
money out, she actually paid a whopping $45,238, because that tax was not
avoided; it was merely deferred. She paid a total of $65,050, or about $6,700
more than the employee.
How is it possible that the small business
person actually paid more tax and had more money at the end of the 10-year
cycle? The answer is that the money on the deferred tax grew to a larger total,
so when she pulled it out, there was more money to tax. In other words, both
the business owner and the government are actually better off. This, again, is
under the scenario the government put in its consultation paper, lest my
friends across the way try to accuse me of contriving the right circumstance to
get the right result.
To be fair, we need to take account of
inflation. The business owner did pay the $35,000 in tax at the end of the 10
years, as opposed to the beginning, and during that time the value of money
declined. The Bank of Canada has a target rate of inflation of 2%, which
reduces the value of that $35,000 by $6,403, but still, even if we subtract
that $6,403, the small business woman paid $250 more in tax than the employee
did in this scenario.
The scenario of course was perfectly
contrived by the government to produce the best possible result to make its
case. Now I am using it to make mine, but if that business person and that
employee had earned, say, 6%, which is still a very reasonable return, then the
business woman would have paid almost $8,000 more in tax after inflation was
factored in than the employee in the exact same circumstance.
Also, the calculation is extremely
conservative. I am excluding the benefits of having the entrepreneur invest the
money up-front and to pay the taxes later. For example, the companies she is
lending to or investing in are paying her 3% for a reason. They are using her
capital to hire people and buy profit generating assets, which also generate
tax revenue for the government. I am excluding all of that revenue from my
calculation.
The finance minister suggests that these
types of passive investments inside a company constitute dead money. He is dead
wrong. In fact, this bizarre claim contradicts his own consultation paper,
which calculated that these very investments generate $27 billion in income
every year. The only way these investments could possibly generate these
returns is if the companies receiving the investments use them to fund their
own growth.
How much of that growth would be lost if the
government deleted the initial investment by forcing the business owner to pay
that extra 35% up-front on the principal, or a new double tax of 73% on the
resulting income? The $27 billion in growth is a lot of money and it cannot be
the result of dead money because we know that dead things do not grow.
The calculation I put forward also excludes
other behavioural responses that would inevitably result from the government's
proposed tax increase. With the punitive 73% tax rates the government is
threatening to impose on passive income, how many of the investments I just
described would simply not happen in the first place? How many young people
would look at the diminished reward and simply say, why should I bother taking
the risk, or why should I not just invest in another country? Even if none of
these behavioural changes happen, if we believe the contrived scenarios the
finance minister has developed to make his case, the government will still be
getting less lifetime revenue, according to the calculations provided by Jay
Goodis, at Tax Templates.
When I asked the Finance officials these
questions, they said it was true that the government would get less revenue,
but that it would be fairer because it would be more neutral. That is the kind
of negative, adverse thinking that the government has toward our entrepreneurs.
This is not a policy of wealth distribution, it is a policy of wealth
destruction. The only reason the government wants a policy that will reduce its
revenue is that it will increase the revenue in the very short term as money
floods out and into the coffers, because the Prime Minister wants to spend the
money now and so he wants to tax it now. Our view is that he should consult
more, fix these problems, scrap this tax increase, and focus on growing the
wealth of the nation so that the rising tide will lift all ships.
Mr. Kevin Lamoureux (Parliamentary
Secretary to the Leader of the Government in the House of Commons, Lib.):
Madam Speaker, the current tax system is
unfair and needs to be changed since a professional making $250,000 a year and
who takes advantage of the current rules could end up paying a lower tax rate
than the middle-class employee on salary. It is very clear that the Government of Canada
understands and appreciates the true value of Canada's middle class and those
aspiring to be a part of it.
Once again, we
see a policy coming from the government that reinforces the view that a strong
Canada means a strong middle class, yet we see the opposition again trying to
attack the government's ability to ensure there is fairer tax for all
Canadians.
Why does this
opposition oppose having a fairer tax system?
Hon. Pierre Poilievre:
Madam Speaker,
this July the Prime Minister and the Minister of Finance made a selfless
announcement that the rich should pay more tax, meaning of course that the
Prime Minister might have to give up the inherited Mercedes he received from
his father and that the finance minister's billion-dollar company would pay much
pay much higher tax rates, and that both of them would make great sacrifices so
that everyone else could pay less. Just kidding.
In fact, they
will not pay a penny more. The billion-dollar family business of the finance
minister is excluded, and the family fortune of the Prime Minister is excluded.
Just the plumbers, the electricians, and the farmers will pay new tax under
this particular proposal.
Speaking of
fairness, let us deal with the inequalities they are creating in this system.
The passive income from investing in someone else's business will be taxed at
higher rates that investment in one's own company. Indeed, there will be a 73%
tax on so-called passive investments within a small private company, but no tax
increase on a larger publicly traded Bay Street company. There will be pension
splitting for government and corporate workers, but no retirement income
splitting for retired business people. Furthermore, farmers will pay higher tax
in selling their family farm to their kids than to a foreign corporation.
If the
Liberals are just trying to create neutrality in the tax code, why will there
be so many new inequalities and so much more unfairness?
Mr. Alexandre Boulerice (Rosemont—La
Petite-Patrie, NDP):
Madam Speaker,
I would like to ask my Conservative colleague a question, but first I would
like to remind him of something that the Liberals do not like to hear.
The Liberal
platform of 2015 indicated that they wanted to look at all tax measures,
billions of dollars' worth, but nothing was said about targeting just small and
medium-sized businesses. They talked about looking at the bigger picture when
it comes to tax measures in order to create greater tax fairness. They also
promised to lower the tax rate for small and medium-sized businesses, which
they have not done.
Instead of
looking at the bigger picture, the Liberals botched the consultation process by
holding it in the middle of the summer and talking about only one thing,
namely, small and medium-sized businesses.
Does the
member agree with the NDP that not only should there be more consultation, but
that the consultation process should look at the entire tax structure, as the
Liberals had promised?
Hon. Pierre Poilievre:
Madam Speaker, I thank my hon. colleague for
the question.
It is
true. The proposed changes are targeted with surgical precision to exclude the
wealth of Liberals, ministers, and their friends. For example, tax havens,
which the hon. member often talks about, were totally excluded from these
changes. We wonder why the government is not looking at areas relating to
corporations and billionaires who avoid paying taxes here in Canada.
If I could just pick up on the earlier
premise of my speech, that less revenue might result from these increased tax
rates, that is exactly what happened as a result of the Liberals' first tax
increase. They said they would collect more money in taxes from the rich. In
fact, according to the finance department's annual report, they collected $1
billion less in tax revenue from the wealthiest Canadians as a result of the
changes brought in during their first year.
By the way, how much will it cost to fund
compliance with these new changes? Will they actually make more money as a
result or will the cost on the taxpayer simply increase, just as they increased
the burden on small business?
Hon. Andrew Scheer (Leader of the
Opposition, CPC):
Madam Speaker, I want to start by thanking
my colleague, the shadow minister of finance, for sharing his time with me
today.
Today, our Conservative opposition is
demanding that the government give Canada's local business owners a little
respect.
For
the past couple of months, our Conservative opposition has heard from Canadians
across the country. They come from all walks of life and live in cities and
rural areas. They own small local businesses and have people working for them.
They are the mechanics and their employees who maintain our cars. They are the
coffee shop owners who provide us with a place to meet our friends. They are
the farmers who provide us with fresh, healthy food, who want to hand over the
family farm to the next generation. They are unanimous when it comes to the
Prime Minister's tax increases. The proposed tax increases are a serious threat
to their jobs, their livelihood, and their community.
Small businesses are the backbone of Canada.
They are the heart of our economy in communities large and small. That is where
we get our first jobs or where people get a fresh start.
That is why we simply cannot stand by and allow
the Liberal government to attack those people. We have been hearing for months
of the very real threat these tax hikes pose to local business. The government
needs to listen to those voices. That is why we are calling for the
consultation period to be extended. There is simply too much on the line for so
many hard-working Canadians for the government to get this wrong.
We are not talking about big multinational
corporations, but about our neighbours and people like Bowen Lew, a first
generation Canadian I met last week in the market. Bowen owns a company that
sells hardwood flooring. He employs five workers. He came to Canada from China
because he believed that this was the right place to build his business and
raise his family. Bowen wants to expand. He wants to open another location. He
wants to hire more workers. That is job creation in action. It is a small
business hiring a few more people. However, the Liberal government's new taxes
on passive investments and income are putting his expansion plans in jeopardy.
It will make it much costlier for him to save within his company.
The government likes to talk about fairness.
It says that it is raising taxes on business operators like Bowen in the name
of making things fair for the middle class. That makes no sense.
That is not fair. Those business owners are
honest, hard-working people. They do not have paid vacation or employment
insurance benefits to help them. They do not keep track of their overtime
hours. Instead, they put everything they have into their business to get people
working and to make their community stronger.
The government demeans people like Bowen and
millions like him by calling them “tax cheats”. The Prime Minister has said
that “a large percentage of small businesses are actually just ways for wealthy
Canadians to save on their taxes”. That is astonishing. I have no doubt that
the Prime Minister and the finance minister run in the kinds of circles where
many people do set up these types of corporations to avoid paying their fair
share of taxes. However, the millions of Canadians across this country like
Bowen are doing it to create something for their family, an opportunity. The Liberals are
targeting local business owners with a political campaign that plays up the
politics of envy and resentment, pitting one group of Canadians against
another, dividing us instead of uniting us.
The decision to raise taxes is being made by
a government with a major spending problem. The Liberals broke their promise to
run a deficit of only $10 billion, and they will not balance the budget by
2019. According to the government's own estimates, Canadians will be paying off
its debt for the next 35 years. The government chose local businesses to
pay back its out-of-control spending. Rather than taking responsibility for its
own mistakes, the government is punishing small businesses.
Higher taxes help no one, but the Liberal
government is determined to impose a massive tax hike with no care for the cost
to jobs or the impact on local communities.
The Liberal government is hurting the very
people it claims to help. The Liberals campaigned on a promise to help the
middle class. However, according to a recent study, 80% of middle-class
families are now paying $800 more a year in taxes as a result of a series
of tax hikes, which include an increase in payroll taxes and Canada pension
plan premiums, the cancellation of many tax credits that families needed, and a
lower TFSA contribution limit.
That is not all. The Liberals also imposed a
national carbon tax. These tax hikes are just another major blow to Canada's
small businesses.
What is so frustrating is listening to the
rhetoric that comes from the government. We are asked to believe that this is
about fairness. We have already established that what the Liberals are doing is
not fair, but let us explore that a bit deeper.
The Liberals are causing a whole bunch of
people to lose out with these proposals, such as anyone who has ever used a
passive investment account to save during good times to get through the bad
times, female entrepreneurs who decide to self-fund their own maternity leave,
and successful business owners who want to save money to open a second
location. Perhaps for some years that money was not invested directly into the
business. Instead, it was put to work elsewhere in the economy. It was invested
in any number of productive enterprises that helped others grow and expand.
After those funds were out there for some time, helping with that growth,
earning interest and compounding, the owner used that money to open a second
location. Anyone who did that is going to lose out under these new proposals.
It is not dead money, as the finance
minister would have us believe. I do not know how he is going to show his face
around serious economists after having said that. Does the minister actually
believe the money that is saved in investments does not do any good? Is he
going to tell all of his millionaire friends, who got exceedingly rich by
taking money from Canadians and investing it for themselves, that they have
somehow damaged the economy by doing that? His solution for that dead money is
to take these defibrillators full of tax hikes and revive that dead money back
to life with a 73% tax rate. That will get the job done.
As so
many people will lose under these proposals, we have to ask ourselves who the
winners are. Who will be better off? The big answer is nobody.
The government admits that the current rules
on passive income do not cost the government in the long run. At the end of the
day, the tax is not avoided; it is deferred. In other words, nobody else has to
pay higher taxes because of that tool. Nobody will benefit from tearing people
down.
The answer must be that the Liberals just
cannot wait. They need the money now. There will be a temporary spike in
government revenue in the year these changes are made, as the deferral is
essentially eliminated. That is why the Prime Minister is doing it. The
Liberals are desperate for cash after raiding the savings that the previous
Conservative government left them.
Just as the Liberal government is
indifferent to the needs of hard-working Canadians, our Conservative opposition
is here to give them a voice. We will not stand by and let the government
cripple local businesses and threaten jobs with these tax hikes. That is why we
are fighting these increases every step of the way.
Today, the Liberal government has the chance
to start repairing the damage it has already done. It has a chance to
demonstrate some good faith toward Canada and local business owners. It can
extend the consultation period on these tax proposals until January 31, 2018,
and why not? What is the downside and what could possibly be wrong with
listening to Canadians for a few more months and getting that feedback?
Extending the consultations would allow
local businesses and farmers to really make their voices heard. It is about
respect for the people who work hard to create jobs and contribute to their
communities. It is high time the government started treating local businesses
with the respect they deserve. Canadians expect nothing less. We, the
Conservative opposition, will always be there to stand up for them. We are the voice
of prosperity and opportunity for all Canadians.
Ms. Kamal Khera (Parliamentary Secretary to
the Minister of National Revenue, Lib.):
Madam Speaker, let us be absolutely clear.
Middle-class Canadians and hard-working small business owners are not the focus
of these changes. In fact, 83% of all passive income is earned by individuals
who make more than $250,000 per year. We also know that a professional making
$250,000 a year who takes advantage of the current rules could end up paying a
lower tax rate than a middle-class employee on salary.
How is that fair?
Hon. Andrew Scheer:
Madam Speaker, I am sure that local business
owners who have to lay off an employee after these changes go through will take
solace and comfort from knowing they were not the target of these tax changes
and that they were hit hard accidentally. They will feel much better about
themselves and the government, knowing the government did not mean to kill
those jobs or hurt those opportunities. They will feel much better when they go
home at night and write that big cheque to the taxman instead of the employee,
knowing they were not really the intended target.
I do not think any Canadian will buy that.
That will not comfort anybody who loses his or her job because of these tax
changes.
Mr. Alexandre Boulerice (Rosemont—La
Petite-Patrie, NDP):
Madam Speaker, what does the member think
about all the broken promises of the Liberals. It would be very interesting,
because they were supposed to help small businesses by reducing their taxation
from 11% to 9%, but they did nothing. They were supposed to study the whole
system of tax evasion, but they are targeting only small businesses. They were
promising to tackle the loopholes of big CEOs, which is costing almost $800 million
per year.
Why are they targeting families and small
businesses but are leaving their friends on Bay Street safe and alone?
Hon. Andrew Scheer:
Madam Speaker, my colleague pointed out so
much in his question, which I think more and more Canadians are starting to
realize. The issue here is that no matter what the Liberals say they are trying
to do, it is always the people they claim to help who are hurt the most by
their policies. Whether it is protecting their friends on Bay Street, while
attacking all those on Main Street, this is just another example.
All the Finance Minister's friends on Bay
Street, his colleagues at Morneau Shepell, all those who attend those $1,500
cash for access fundraisers will not pay more. Those who own shares in
publicly-traded, multinational companies will not be affected by this. That is
what is so hypocritical about these Liberal proposals.
Ms. Yasmin Ratansi (Don Valley East, Lib.):
Madam Speaker, we are all here to solve a
problem. We all know that small and medium-sized enterprises create jobs.
However, the member has suggested that the proposal will affect contractors,
plumbers, and small and medium-sized enterprises. I have the proposed changes
in front of me. Could he tell me which section applies to that? I would really
like to know.
Hon. Andrew Scheer:
Madam Speaker, that question exhibits the
need for this motion. She clearly has not been listening to Canadians who are
coming to town halls and explaining how this will affect their businesses.
Since the member has just demonstrated to her colleagues why we need a longer
consultation period, because clearly Liberal members have not been hearing
enough from Canadians, how will she vote on this motion today? Will this be a
free vote? Will Liberal members who are hearing from constituents be allowed to
vote in favour of this motion to extend the consultation period?
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