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Kim G C Moody’s Musings – 1-1-1 Newsletter For July 3, 2024


One Comment About Taxation – Big Taxation Opportunity For Canada


Happy 157th Birthday Canada!  I hope you spent some time over the weekend pondering how great our country is and how rich its history is.  

Recently, I had the good fortune to visit Juno Beach in the Normandy area of France weeks before the 80th anniversary of D-Day.  It was a haunting experience to think of the thousands of Canadian and Allied Forces who served and sacrificed their lives on that very spot so that we could preserve our freedoms, continue to learn, grow, and capture opportunities.


Accordingly, I’d like to describe the big opportunity that Canada has regarding its taxation future.  


First, a little context and history.  Canada has a rich income taxation history but that didn’t start until 50 years after Confederation and was introduced into law as a means to help finance Canada’s First World War efforts in 1917.  Originally the income tax statute was a whopping 11 pages long and very simple by today’s comparative.  As Canada’s population and economy grew, our Income Tax Act also grew to try to keep up with the changes.  


In 1962, Prime Minister John Diefenbaker commissioned the first ever Royal Commission on Taxation to have its eminent members study and make recommendations on how Canada’s taxation system should look in order to provide for its future.  The Commission released its voluminous report in 1966.  It was debated hotly for years after but ultimately served as the basis for major tax reforms that were implemented on January 1, 1972.


Since 1972, there have been some limited scope reviews / reforms (like the 1986 Budget and the 1997 Report of the Technical Committee on Business Taxation) but nothing major like the Royal Commission.  For at least the past dozen years, many tax practitioners, organizations like CPA Canada and some academics have been calling for tax reform since society has changed greatly in the last 52 years.  


Today’s Income Tax Act is roughly 2,000 pages of almost incomprehensible language that even seasoned tax specialists like me struggle with.  It has become a patchwork quilt of “fix” upon “fix”.  In addition, there are no shortage of politically motivated provisions.  Overall, this makes the administration of the Act very complex and causes our taxation system to be unapproachable to the average Canadian.


I have previously written on what I would do if I was in charge of another Royal Commission.  Realistically, though, the political environment to do an open-ended review like that of 1962-1966 is likely not possible.  Instead, it is more realistic to have another limited scope review – but much more expansive than the prior ones – that focuses on overall improvements to our taxation system (including simplification measures and measures that are aimed at improving our country’s productivity challenges).  Such measures should include reducing our personal tax rates, ensuring there are tangible incentives to risking one’s assets to be an entrepreneur (like reduced capital gains inclusion rates) and a whole host of other measures.  


Don’t get me wrong, I love the idea of having another open-ended taxation commission. I have spent hundreds of hours thinking about how our system could be improved in favor of something better. There is no shortage of improvements that could be done.  But, given the choice of limited scope or not having a taxation review (this current government has chosen the latter and is certainly not interested in any form of taxation review), I’ll choose limited scope.  Why?  I think a limited scope review commission that is comprised of well experienced practitioners, academics and other experts could make a real difference, quickly, to help improve Canadians’ lives.  


Taxation policies matter.  It starts with rewarding success and trying to attract the best and the brightest to Canada while ensuring our country’s social safety nets are good enough to take care of the most vulnerable. Too many of our recent taxation policies are politically motivated and are focused on punishing successful people and redistributing wealth.  The high personal tax rates on the “rich” are an obvious example of that with many Canadian provinces having a combined federal-provincial tax rate of approximately 54%.  In my view, that’s egregious and it needs to change.  


It also means ensuring lower income Canadians are not punished for wanting to earn more; encouraging compliance with our income tax laws by making it easier for people to file (like introducing automatic tax filings for many taxpayers); and eliminating many egregious and politically motivated tax measures (like the ridiculous “flipping tax” on real estate and expense denial for certain short-term rental owners) so as to simplify our system.


So, what is the opportunity, then?  Well, by now I hope it’s obvious.  With the Liberal Party in obvious decline, Canadians have the opportunity within the next 16 months to demand change.  If the Conservative Party forms the next government, it has promised it will commence a limited scope taxation review.  And that is the real opportunity for significant and positive change.  Again, taxation policies matter.  Just like prudent fiscal policies matter.


The famous American economist, Milton Friedman, once said: We have a system that increasingly taxes work and subsidizes non-work.  I think that quote aptly describes Canada’s recent taxation policies.  We have significant work to do to change that.


Fingers crossed that by Canada’s 159th birthday, we’ll see significant progress towards an improved taxation system for all Canadians.  Capturing such an opportunity would be a small but continuing and important step to honor the efforts of those Canadians, such as those who landed on Juno Beach, who made the ultimate sacrifice to preserve our democracy and freedoms.  


One Comment About Leadership – Leaders Concentrate and Avoid Distractions


Have you ever had a meeting with someone and it feels like there is a third person in the room with them?  It can feel that way since that person is always checking their phone, “pings” are constantly emanating from one of their devices and / or they are typing back responses.  Are you that person?


Or how about if you are sitting down at a table with someone and their phone is front and center on the table with them?  Again, are you that person?


Over the years, I’ve certainly been guilty of being that person.  I’m not guilt-free from the above scenarios today but I’m a hell of a lot better than I used to be. If you’re in a position of leadership and you are not 100% concentrating on the subject in front of you – often a person that you are engaging with – then you have work to do to be a better leader and improve your manners.


The next time you are at a dinner with your spouse / partner / friends, notice how many phones are on the table.  If you’re one of them, I challenge you to put the phone away.  Better yet, don’t bring the phone with you (keep your phone in your car for example).  In most cases, whoever is trying to contact you is not doing so in an emergency and whatever “ping” you are receiving on your phone can wait until a better time to respond to.  


In today’s hyper-dopamine filled world, it will be tough to accept my challenge and you might even have “withdrawals”.  Trust me, though, you’ll be a better leader and a better person for doing it.  


Good leaders have focused concentration skills and work hard to avoid being distracted.  One of the positive results of purposely concentrating on the people around you is that you make them feel important and special.  That goes a long way to creating loyalty and you simply being a better person and leader.


One Comment About Economics: The Province of British Columbia – What Happens When Tax and Economic Policies are Poor


One of the most beautiful provinces in Canada is British Columbia.  I love spending time in B.C.  Unfortunately, though, its population continues to elect socialist provincial governments that implement poor tax and economic policies.  


Eminent economist, Jack Mintz, wrote about this recently in one of his columns in the National Post.  From the article:


The talk of the town in Vancouver, where I was this week, was an Angus Reid poll showing that a third of B.C. residents are seriously considering leaving the province because of its high housing costs. Even more shocking, young people — those between 18 and 34, who are more likely than older people to actually change locations — are looking to exit as well.


Statistics Canada’s tally of inter-provincial migration paints a similar picture. Since the third quarter of 2022, more people have been leaving B.C. than coming to it, reversing years of net migration to the province. From the third quarter of 2022 to the fourth quarter of 2023 (the latest for which data are available), B.C. had a net loss of 15,000 people to other provinces. Over the same period, 13,000 people left for other countries (once you net out returning emigrants). Put these two numbers together and B.C. lost 28,000 residents in just a year and half.

People who aren’t exiting B.C. seem more and more ready to voice their anger at the ballot box. Polling confirms British Columbians are ready for a change in both federal and provincial governments. Incomes have not kept up, investment has slowed and many businesses are finding it hard to raise capital. The B.C. government is expecting to have a deficit of $7.9 billion in 2024-25 — two per cent of GDP, highest since 1983. That means more taxation to feed the hungry beast. No wonder the federal Conservatives are leading in the polls — and by a wide margin. Current predictions are for substantial seat losses for both the NDP and Liberals.

And then there’s the avalanche of suffocating [provincial] NDP tax hikes since May 2017. B.C. now has a France-like federal-provincial combined marginal income tax rate of 53.5 per cent. France’s top rate is 55.4 per cent — except that it applies to income 14 times, not three times, the average wage, as in B.C. Not surprisingly, many skilled workers are moving to Alberta, with its lower top rate of 48 per cent.

The B.C. corporate tax has also been pushed up, to 12 per cent from 10, four points higher than Alberta’s, the lowest in the country. It’s no surprise that investment has also been exiting for Alberta. B.C. fuel excises and carbon taxes are the highest in the country. And revenues from the carbon tax, once used to reduce personal and corporate income taxes, are now used as a spending lubricant.


The province’s antiquated retail sales tax, two-fifths of which comes from businesses’ intermediate and capital inputs, seriously undermines B.C.’s attractiveness to capital.


In the guise of tax reform, the NDP also hiked taxes by converting its health-care premium into a job-killing employer payroll tax. Municipal and provincial property taxes keep rising, hitting cash-poor homeowners. New taxes on vacant property are discouraging home construction.


Like Jack Mintz, I too hear the complaints of many B.C. residents when I visit and / or advise BC residents.  I get the distinct impression that people have had it and are craving change.  This is not surprising.  Like I said in the taxation section above, taxation and, of course, economic policies, matter.  


Some common sense needs to return to Canada and one of its most socialist provinces.  


Bonus Comment – Quote From An Old Zen Proverb About Concentration


When walking, walk.  When eating, eat.

Yep, totally agree!  Leaders, are you concentrating effectively and trying hard to avoid distractions?


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