Since the Liberal-NDP partnership was formed at the end of March of this year, one of the common political messages has been “tax the rich”.
In terms of policy decisions, this translated into a new federal luxury tax on vehicles and planes priced over $100,000 and boats priced over $250,000.
The tax rate is either 10% of the total after-tax purchase price or 20% of the value above a certain threshold, whichever is lower.
For the purposes of this report, I will focus on boats.
The rationale for the tax, by the government, is that anyone who can afford a boat that costs $250,000 can afford to pay more in tax.
Some readers are probably already wondering why bother mentioning a tax that only an incredibly small percentage of the population will have to worry about.
I am not writing to make the case for potential new boat owners, but rather to explain the political ramifications of tax competitiveness.
When the Parliamentary Budget Officer (PBO) considered the fiscal implications of the luxury tax, he concluded that it would generate government revenue of up to $760 million.
While this sounds positive, the downside is that the PBO also calculates there will be a $2.9 billion drop in sales.
The Parliamentary Budget Officer estimates that 75% of this loss, or $2.1 billion, will be suffered by the pleasure craft industry here in Canada.
In other words, this tax creates a shortfall.
As representatives of the Canadian shipping industry have told us, the tax is expected to cause job losses and other economic hardship.
As many know, Campion Marine, an iconic boat manufacturer in Kelowna, recently closed, resulting in the loss of approximately 100 well-paying jobs, as well as the loss of other important economic contributions to our regional and national economy.
It must be recognized that there is already a provincial luxury tax in British Columbia and that an additional federal luxury tax will hit British Columbia harder than other parts of Canada.
Provincial and federal luxury taxes would be applied to boat purchases before the application of the GST. This means that the GST is also ultimately applicable to provincial and federal luxury taxes, which creates an even higher final sale amount on the boat in question.
These additional costs create a greater incentive for buyers who wish to avoid paying these taxes and have the means to go to other jurisdictions where taxes are not an issue.
I’m not saying the luxury tax was the only reason Campion closed in Kelowna, because most of the boats it built wouldn’t have been affected by that luxury tax.
However, it highlights a trend that we as Canadians should be aware of. Global Okanagan News reported that Campion would move production to Texas and Mexico. In Texas, Campion will not pay any luxury tax, carbon tax, or pay higher payroll taxes on EI and CPP, as well as provincial employer health tax.
In other words, as these new additional costs make Canadian-made goods and services more expensive, it makes the cost of doing business outside of Canada more attractive.
For example, you may remember the Bombardier C-Series jet. Although Canadian taxpayers invested approximately $1 billion in the development of this commercial aircraft, it is now built in Alabama and Canada.
On another different but local note, while Tolko Industries has closed local sawmills in the communities of Kelowna and Merritt, it has invested in several new sawmills in places like Ackerman, Mississippi, Urania, Louisiana and Ruston, Louisiana.
It’s not just a problem for the federal government. Many provincial government policies also contribute to the lack of competitiveness, and in some cases local government also plays a role.
My question this week:
Are you concerned about the growing number of high-paying factory and manufacturing jobs leaving Canada for the United States?
I can be reached at [email protected] or call toll free 1-800-665-8711.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.