One Comment About Taxation – It’s Time to Change How Canadian Tax Policies Are Developed and Implemented

 

Last week, the Parliamentary Budget Officer released a report that estimated how much the federal government will raise in extra tax revenues as a result of the proposed capital gains inclusion rate increase from 50% to 2/3’s effective June 25, 2024.  The PBO estimated that the federal government will raise $17.4B over the next 5 years.  The federal budget documents, however, estimated that the increase would raise $19.3B over that time frame.  That $1.9B difference, or 9.8%, is material.  

 

What was interesting to me, however, is that the PBO estimated that the federal government would only raise $5.0B in 2024/2025 vs the $6.9B estimate in the 2024 federal budget documents, again a $1.9B difference or 27.5%.  

 

Recall that the increased capital gains inclusion rate was announced on Budget Day, April 16, 2024 but, as stated above, the effective date of the increase was arbitrarily chosen to be June 25, 2024.  The government was shamelessly encouraging Canadians to trigger capital gains on an accelerated basis during this roughly 10 week period so as to collect extra taxation revenues.  The government worked in this extra taxation revenue into its 2024/2025 budget so as to enhance the appearance that it was keeping the deficit within its announced target. 

 

As I’ve written previously, that is a disgusting way to do government budgeting and goes against the basic principle of investing that you don’t let the tax tail wag the investment dog.  Unfortunately, that is exactly what the government was encouraging Canadians to do. 

 

I’m on record criticizing the government harshly for this encouragement and predicting that the estimated tax revenues of $6.9B for 2024/2025 will be significantly less.  Why did I predict that?  Well, for similar reasons that the PBO stated in its report.  There was simply too little time and uncertainty to adequately plan in advance of the June 25, 2024 deadline.  The draft legislation providing most of the critical details of the proposal – but not all – was released on June 10, 2024, a mere two weeks before implementation of the proposal. 

 

And the uncertainty continues.  When the draft legislation was released on June 10, 2024, the Department of Finance stated the current package of proposals “…will be followed by the release of updated draft legislation this July.” Well, the draft legislation was finally released on August 12 almost two weeks into August.  

 

Why the delay?  Obviously, I don’t exactly know.  However, I do know that the Department of Finance bureaucrats who are in charge of drafting the applicable legislation are working hard to appease their political masters.  Does the Department of Finance, and specifically the tax legislation division, need more qualified people?  Likely.  Such people, however, are definitely hard to find.  Notwithstanding, the Department of Finance overall had 942 people under its employ as of March 31, 2024.  That is an increase of 199 people, or 27%, since 2015.  That is material.  

 

However, to be fair, the tax legislation division of the Department of Finance is a much smaller subset of the whole so it’s hard to determine precisely from publicly available data whether there has been a material change from 2015. My guess is that there has not.  But there likely should be given the huge volume of tax legislation released in the last number of years and the critical function this small group of bureaucrats perform.  Compare that to the Canada Revenue Agency headcount increase from 2015 which is a staggering 47.6% increase from 2015.  In my view, that is not good value for taxpayers’ dollars.

  

So, where does this all leave us?  Well, as I’ve stated many times before, our current federal government has a knack for implementing poor tax policy.  From poorly thought-out policies (like the denial of expenses on short-term rental property owners that operate in a municipality that prohibits such rentals, and the “flipping tax”), rushed and last minute policies (like the capital gains inclusion rate increase that was so obviously a last minute addition to the 2024 federal budget) and outright political attacks on groups that are not part of the current government’s voter base (like the attack on small businesses in 2017, the recent amendments to the alternative minimum tax and the 2016 increase in personal tax rates on the so-called “rich”) leaves our country sorely lacking in good taxation policy development and implementation.  

 

As the eminent economist, Dr. Jack Mintz recently wrote in this newspaper:

 

Whoever leads the government after the October 2025 election — which can’t come soon enough — seems likely to inherit a bad economy, big public deficits and a moribund private sector. The last thing we need are more of the wacko policies that got us here. What we do need are ideas that will grow Canada’s economy and wealth so we can enjoy the good life.

 

I very much agree.  I would add that we also need a better process for implementing tax policy.  Currently, the development and implementation of taxation policies are the sole purview of the Department of Finance.  While I’m likely dreaming, I believe a more inclusive and transparent method of developing and implementing taxation policies for the benefit of ALL Canadians – not just groups that appease the governing party’s voter base – would be ideal.  The U.K. attempted to implement such basic objectives in the early 2010’s but lots has changed since then.  

 

Perhaps that objective could be achieved with the development of an independent body comprised of parliamentarians and other independent experts who would work closely with the Department of Finance to ensure that policy proposals are sound and the financial estimates supporting such proposals are thoroughly vetted (instead of some of the poor estimates that appear to be done to support the current federal budgets). And there should be consequences, such as the delay of implementing any proposals, for not meeting publicly announced deadlines.  

 

Again, I’m likely dreaming but Canadians deserve so much more accountability and transparency in the development and implementation of taxation policy.  It’s time to change that.

  

One Comment About Leadership – Servant Leadership

 

The first time I heard about the idea of “servant leadership” was when my good friend and business partner, Dennis Nerland, talked to me about it roughly 20 years ago.  He was a big believer.  

 

According to the font of all wisdom, Wikipedia, servant leadership is a subset of “…leadership philosophy in which the goal of the leader is to serve. This is different from traditional leadership where the leader’s main focus is the thriving of their company or organization.”

 

A similar definition by one of the early developers of this leadership philosophy – Robert Greenleaf – describes it this way:

 

The servant-leader is servant first… It begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead. That person is sharply different from one who is leader first, perhaps because of the need to assuage an unusual power drive or to acquire material possessions…The leader-first and the servant-first are two extreme types. Between them there are shadings and blends that are part of the infinite variety of human nature.

 

I think the last two sentences of the above quote are worthy of considerable thought and reflection that this short piece can not do justice to.  Having said that, I do believe that the core function of a leader is to both serve his / her audience well and to lead the organization down the right path.  Finding such a person is rare since there are many leaders who are “leaders first” and there are many books / articles written about that style of leadership.  

 

I like to follow the example of Dennis Nerland.  He believed in the “blend” that the Robert Greenleaf quote above discusses.  We had many conversations about this blend in leadership styles before he passed away in 2021.  It’s not easy to pull off the “blend” as a leader but it is certainly worth the attempts.  

 

Leaders, are you attempting the blend?

 

One Comment About Economics: Bank of Canada Engages Expert Panel to Review its COVID Policies

 

Last week, the Bank of Canada announced that it has established an expert panel to review its COVID period policies. One of the three experts it retained is University of Calgary economics professor Trevor Tombes.  Kudos to him for this appointment. 

 

As the Bank stated in its announcement on this:

 

“Successful organizations are learning organizations. It is critically important to learn from our experience through the pandemic and its immediate aftermath to sharpen our response to the next crisis,” said Bank of Canada Governor Tiff Macklem. “The external expert assessment will bring together three renowned international and Canadian academics and policymakers with extensive experience in central banking and economic and financial policy research.  The diverse perspectives of these experts will help us draw the right lessons from this unprecedented crisis. This is critical to ensuring the Bank delivers the best policy for Canadians, whatever lies ahead.”

 

The Bank’s pandemic review will look at the context and the timeline of the Bank’s policy actions, assess their effectiveness, and identify lessons learned. It will also identify key questions to guide future discussions should the need for exceptional policy measures arise again in the future.”

 

There is no doubt that some of the actions of the Bank of Canada during that time were questionable. Some, including me, questioned the massive amounts of money injected into the economy and the delay in raising interest rates to quell inflation.   

 

I look forward to hearing what the “expert assessment” has to say.

 

Bonus Comment – Quote From John C Maxwell – American Author, Speaker and Pastor – About Servant Leadership 

  

“People do not care how much you know until they know how much you care.”

 

Absolutely agree!  

 

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