THE federal Liberals finally brought forward a motion on their controversial capital-gains tax proposal.
The associated legislation, however, is not tabled, with many details uncertain. I was waiting to outline a modest incremental alteration to try address concerns, but as delays mounted, I was struck by too many problematic similarities to another controversial policy, the carbon tax.
Both appear driven primarily by politics rather than practical outcomes. Both are touted for fairness, but upon examination show claims are false or questionable. Both have problems regarding effectiveness, with no Plan B and an overemphasis on aggregate computer models for evaluation, rather than considering how individual households or businesses are impacted.
The regrettable penchant of the Liberals for game-playing, rather than sound policy, appeared behind the capital-gains tax increase. The express intent appeared to be creating a wedge issue. The same has long been true of the carbon tax, but almost no one believes rhetoric on that any longer.
On capital-gains, the politics have already backfired. Emerging primary critics have turned out to be former Liberal finance ministers John Manley and Bill Morneau. While touted as being about fairness, the capital gains tax proposal created collateral damage. This includes small businesses, with the tech sector notably identified, as well as physicians across Canada. Incorporation provides a tax strategy to manage expenses and generate retirement savings.
Such an approach to managing expenses became popular for doctors given fees had not kept pace. Physicians operate mostly as “independent contractors” who must cover costs for clinics and staff, and largely have no access to employer-based pension plans. Yet, if they are individual professional corporations, they must pay fully on capital gains tax.
The government suggests only a small number of Canadians are impacted, indeed claiming only the extremely rich. Emerging information shows this is untrue, with obvious “bait-and-switch” tactics being used. The same game was employed on the carbon tax, suggesting only the wealthy pay more. Yet, this is not true. Examining actual results and triangulating individual household costs and rebates for Manitoba, shows that average households have indeed paid significantly more in carbon taxes than rebates over successive past years.
Specifically, regarding the carbon tax, the recent tiff with the parliamentary budget officer confirms objections from the Liberals have been solely about future-oriented results from duelling computer models, rather than actual impacts. The capital gains tax proposal has been treated similarly. Impacts on individuals and small businesses are not discussed. It would be relatively simple to gather data on physician corporations, and assess impacts. The prime minister instead now merely suggests physicians are well-off, but he himself is already privileged, and not in any need. As one physician wryly noted, “people may believe family doctors are well-off, but only until they do not have one.”
An unanticipated effect is that without the capital gains option to save for retirement, physicians will likely need to push provincial governments for higher fees. The net impact could involve higher provincial health-care costs, inconsistent with earlier federal health funding commitments.
The biggest concern is ineffectiveness. The carbon tax, in particular the consumer commodity tax targeted by the Opposition, has performed poorly, accomplishing effectively nothing. Proponents, naively or misleadingly, suggest reductions of six per cent since 2019 as proof, yet ignore Environment Canada’s confirmation that COVID dominated observed reductions. Estimates by my students suggest attributable reductions since 2019 are less than one per cent, and with costs higher than the cost of doing nothing.
Regarding capital gains tax, arguments on ineffectiveness come from John Manley. During his time, the inclusion rate was actually reduced to 50 per cent, specifically because people just continued to hold, with little revenue generated. Reduction of the inclusion rate then indeed made more money for government. If history repeats, the current government easily could come up short. What then?
The Liberals are entitled to pursue questionable policies, but one adroit amendment might help. Why not provide the same $250,000 deduction accorded for individuals to corporations, but only small- or medium-sized enterprises? This would cover incorporated physicians too, and fairly ensure they are not disadvantaged up to a reasonable value associated with a modest clinic. The government suggests affected parties are few, such that revenue losses overall would be trivial, hence no reason to object.
Canada is still in the grip of a primary care physician shortage, as many as 400 noted alone for Manitoba. We need governments to be more thoughtful, and not throw doctors under the bus when it suits them, simply for political expediency!
Robert Parsons, PhD, MBA teaches sustainability economics, mathematics and supply chain management at the I.H. Asper School of Business, University of Manitoba, and earlier worked for an extensive time in government.
