Delivering on a Liberal campaign promise to address wealth inequalities in Canada, the recent federal budget refines 2021 proposals to impose a “luxury tax” on cars and aircraft costing more than $100,000. The tax is to be 20 per cent of the value over $100,000 or 10 per cent of the total value, whichever is less. On the surface, it’s logical to tax those who are able to afford luxury items for leisure and hard to argue against initiatives that strive for fair taxation. But don’t be fooled by the name, the luxury tax merely pays lip service to fair taxation. It has even less to do with income redistribution, which is a surer way of addressing income inequality.
The fine print reveals that the tax actually targets manufacturers who produce the cars and plans, not those who purchase them. It was devised without input from or consultations with many relevant stakeholders, and no analysis has been produced to determine if it would achieve its intended objectives. Last August, Finance Canada did launch consultations on the proposal. But the minor revisions it has since offered do not reflect many of the concerns expressed by participants, including the possibility of a broad exemption where small plans are used for business purposes.
Over the course of the pandemic there has been a sharp increase in sales of pre-owned and leased aircraft — they’re up 5.2 per cent since 2019-2020, which represents about 136 aircraft — while sales of new private jets have declined by 20 per cent over the same period. Yet the tax applies only to new vehicles and aircraft.
It would have its biggest effect on a limited number of manufacturers whose businesses rely heavily on production of aircraft. 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 firms carry the liability of paying the tax, but if the tax rendered them less competitive, consumers of this type of good would turn to their competitors, most of whose home governments do not impose a luxury tax of this sort. As a result, they would lose business. Aircraft production is a strength for Canada, providing a solid foundation for jobs and growth. It should not be punished in a misdirected effort that will mainly target manufacturers and workers.
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Rather than rushing to implement this tax, the government should conduct a comprehensive study, along with case studies of similar taxes in other countries. One famous case concerns a tax introduced in the United States on luxury yachts in the 1990s. It decimated the boat-building industry, resulting in a 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 recovered through taxes. Those who unjustly bore its unintended consequences included workers and their families and communities. Wealth inequality wasn’t affected, nor were the wealthiest Americans’ bank accounts reduced.
The Canadian aerospace sector was hit hard by the pandemic because of the collapse of air transportation. Its recovery will be slow, and the government has provided some support to boost the industry. But what it gives with one hand, it takes away with the other. The luxury tax as it currently stands would create a disincentive for business to operate in Canada. About 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 a large number of aerospace workers across Canada. It’s important to those workers and to the country that aerospace remain a viable industry in Canada. Our members and their communities depend on these jobs.
One of the pillars of unionism is economic justice through reduction of income inequality, and to that end, the IAMAW fully supports fair taxation policies that aim to redistribute income. But this policy is misguided, underdeveloped, and only seems to address fair taxation. At worst, it will only burden an already struggling industry, one that has been of national importance to Canada.
The IAMAW is therefore calling on the government to conduct a proper study of the likely impacts of its proposed tax. We also urge it to consult with relevant stakeholders to develop measured, thoughtful policies to tax 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).