Luxury items 

David Chartrand: Luxury tax or job killer?

Don’t be fooled by its name, the luxury tax only pays lip service to fair taxation

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Delivering on a Liberal campaign promise to tackle wealth inequality in Canada, the recent federal budget refines 2021 proposals to impose a “luxury tax” on cars and planes costing more than $100,000. The tax should be 20% of the value over $100,000 or 10% of the total value, whichever is lower. On the face of it, it makes sense to tax those who can afford luxury items for leisure, and it is hard to oppose initiatives that seek fair taxation. But don’t be fooled by its name, the luxury tax just pays lip service to fair taxation. It has even less to do with income redistribution, which is a surer way to tackle income inequality.

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The fine print reveals that the tax actually targets the manufacturers who produce the cars and planes, not those who buy them. It was designed without the participation or consultation of many relevant stakeholders, and no analysis was produced to determine whether it would achieve its intended objectives. Last August, Finance Canada launched consultations on the proposal. But the minor revisions he has since proposed do not reflect many of the concerns expressed by participants, including the possibility of a broad exemption when small planes are used for commercial purposes.

During the pandemic, there has been a sharp increase in used and leased aircraft sales – they have increased by 5.2% since 2019-20, which represents around 136 aircraft – while jet sales new private homes fell by 20% over the same period. However, the tax only applies to new vehicles and aircraft.

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This would have its greatest effect on a limited number of manufacturers whose businesses rely heavily on aircraft production. Among the companies affected and the location of their operations are Bell Textron Canada (Mirabel), Airbus Helicopters Canada (Fort Erie), Viking Air/De Havilland (Victoria and Calgary), Diamond Aircraft (London) and Pratt & Whitney (Longeuil, Quebec). ).

Not only would these businesses be required to pay the tax, but if the tax made them less competitive, consumers of such goods would turn to their competitors, most of whose national governments do not impose such a luxury tax. . As a result, they would lose business. Aircraft production is a strength for Canada, providing a solid foundation for jobs and growth. He should not be punished in a misdirected effort that will primarily target manufacturers and workers.

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Rather than rushing to implement this tax, the government should conduct a thorough study, as well as case studies of similar taxes in other countries. A famous case concerns a tax introduced in the United States on luxury yachts in the 1990s. It decimated the boat building industry, leading to the loss of well-paying jobs in communities in several states that relied on this work. In its first year, the luxury tax actually cost the government more to administer than was recouped through taxes. Among those who have unfairly suffered its unintended consequences are workers, their families and their communities. Wealth inequality has not been affected, and the bank accounts of the wealthiest Americans have not been reduced.

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The Canadian aerospace sector has been hit hard by the pandemic due to the collapse of air transport. Its recovery will be slow and the government has provided some support to stimulate the industry. But what he gives with one hand, he takes away with the other. The luxury tax as it currently exists would discourage businesses from operating in Canada. Around 30,000 jobs have already been lost in aerospace; the luxury tax would destroy more stable, well-paying jobs.

My union, the International Association of Machinists and Aerospace Workers, represents many aerospace workers across Canada. It is important to these workers and to the country that aerospace remains a viable industry in Canada. Our members and their communities depend on these jobs.

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One of the pillars of trade unionism is economic justice through the reduction of income inequality, and to this end the IAMAW fully supports equitable tax policies that seek to redistribute income. But this policy is erroneous, underdeveloped and only seems to aim at fair taxation. At worst, it will only burden an already struggling industry, an industry that is of national importance to Canada.

The IAMAW therefore calls on the government to carry out an appropriate study of the likely impacts of its tax proposal. We also urge it to consult with relevant stakeholders to develop measured and thoughtful policies for taxing wealth. This luxury tax does not do that.

David Chartrand is Canadian General Vice-President of the International Association of Machinists and Aerospace Workers (IAMAW).

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