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

 

One Comment About Taxation – The Proposed Canadian Capital Gains Inclusion Rate is a Poor  Display of “Magic” and Poor Politics…Not Good Policy

 

I’ve always been fascinated by magicians and how incredible some of their tricks are.  A few years ago, my youngest son became fascinated as well and aggressively took up the craft and became pretty good!  He let me in on some of the sleight of hand and distraction skills that are required to pull off an effective trick.

With this in mind, I couldn’t help but think of good magicians with respect to the Canadian government’s 2024 budget and its proposal to increase the capital gains inclusion rate from 50% to 2/3’s for corporations and trusts and individuals who have over $250K in annual capital gains realized after June 25, 2024.  While doing this, it plans to raise almost $5 billion dollars from corporations (who might purposely trigger capital gains before the effective date of June 25, 2024 to “crystallize”) to finance some of its excessive spending.  That’s quite a magic feat.

To introduce the proposal, the government pulled out of its old bag of tricks another attack on the wealthy and so-called “rich”.  Apparently, the proposal will only impact 0.13% of Canadian individuals.  And only 12.6% of corporations.  This messaging is blatantly disingenuous and manipulative.  The real impact will be much greater.

The Prime Minister and his government (obviously feeling the heat of its proposal with significant backlash, the budget falling flat amongst its targeted youth and not getting the hoped-for polling bump) started vigorously defending its budget.  Last week, in a Saskatoon, SK press conference, the Prime Minister continuously argued that the capital gains inclusion rate increase is necessary since the system is currently unfair to young people who can’t afford to buy a first home and that it’s time for wealthier and older individuals to pay more to work towards “intergenerational fairness”.

He also said: “We just don’t think it’s right that a student or an electrician or a teacher be paying taxes on 100 per cent of their income while others have the opportunities to use accountants and any taxes on only 50 per cent of that income”.

The above comments are classic sleight of hand responses (so obviously crafted by the Prime Minister’s Office or other government communication’s crisis team) to try to distract from the real issues.  Intergenerational fairness and asking the so-called “rich” to pay more tax with an increased capital gains inclusion rate is quite a leap of logic.  How that pull of the policy lever assists with “intergenerational fairness” is certainly not visible to me and millions of Canadians.

If the PM genuinely wants to take positive steps towards “intergenerational fairness”, the most important thing to do would be to reduce spending and get our country’s debt loads back in line.  Budget 2024 projects that our country’s public debt charges will be $54.1 billion for this coming year (that is over $1 billion / week) and is almost identical to the amount that is projected to be collected in GST by the federal government.  Think about that: all of our country’s GST collections is going to pay public debt charges.  Paying public debt charges brings no societal benefits (no hospitals, roads, supporting our social benefits, etc) and instead benefits bondholders.  Burdening our children and grandchildren with our country’s growing debt, and its corresponding debt charges, is certainly not in the interests of intergenerational fairness.

The attack on one of our country’s most important professions – accountants – is also quite remarkable.  A sitting PM states that if you can afford to hire an accountant then those evil accountants will be able to cut your tax bill in half.  Besides being extraordinarily offensive to the conservative profession, apparently accountants are now also magicians; abacadabra…poof!!  Your tax bill is cut in half!  Such hogwash.  So much so, that CPA Canada came out with a strong statement defending the good honor of accountants and against such an offensive allegation by the PM.  The honorable thing to do for the PM / PMO’s office would be to apologize to our great nation’s accountants.  Accountants are hardly a problem.  Frankly, without accountants, the entire Canadian tax system would fail.  That’s not an exaggeration.  It’s the simple truth.

While some economists have come out strong in defense of the capital gains inclusion rate (with such arguments usually centered around “equity” – a “buck is a buck” – or “best of a bad alternative” or “the sky won’t fall with a capital gains inclusion rate increase”), such arguments ignore the real world of investing.  Investors will place their dollars where they feel the garden has fertile growing conditions.  If the assessment determines the garden is not fertile enough, they will place their investment dollars elsewhere.

To be fair, I think many entrepreneurs, economists and tax policy wonks would have been more accepting of an increase in the capital gains inclusion rate if it was met with measures to counter the negative impacts described above.  That could have included a significant reduction in corporate and personal tax rates.

Such measures, including reduced spending, would have helped make the economic garden a bit more fertile and been a positive step in dealing with our country’s serious productivity issues.  Instead, as mentioned, the increase in the capital gains inclusion rate was accompanied by offensive rhetoric, misleading and disingenuous “statistics” and now the sleight of hand trick (“intergenerational fairness”) to deflect attention from what this measure truly is: a simple political attack against many Canadians in the hope of increasing votes from the younger generation in order to help finance excessive spending.

For many successful Canadians, the increase in the capital gains inclusion rate is the final straw.  They have endured endless attacks in the last nine years in the form of increased personal tax rates, harsh amendments to the Alternative Minimum Tax, witnessing illogical and ideological windfall taxes on the financial sector (what sector is next?), attacks on short-term rental owners, attacks on small businesses with anti-income splitting rules, grinds on the small business deduction if you have too much passive income, threats of a wealth tax, etc, etc. It’s too much.

My phone / emails/ texts have been off the charts with successful Canadians requesting help to leave Canada once and for all.  Such exits have unfortunately been all too common in the last number of years but this final straw has taken it to a new level.  From my conversations with many peers across Canada, I’m not alone in this increased activity and that is not good for all Canadians.

Thankfully, many Canadians are recognizing that the magic show is almost over. They can only be tricked so often into believing that broad based tax increases and poor policy – like the capital gains inclusion rate increase – is good for all Canadians.  The magic is simply not real.

 

One Comment About Leadership – Mentoring Youth

 

Dr. Nicholas Murray Butler once said: “The youth of today and the youth of tomorrow will be accorded an almost unequalled opportunity for great accomplishment and for human service”.

How wise. It is tempting for youth or the population in general to be down in the dumps about all of the challenges that the world currently faces and that because of those challenges it is not worth making efforts to make a difference.

In my view, however, it is wrong to focus on the things that you cannot control.  That doesn’t mean you should be dismissive about world events and issues.  Instead, focus on how you can make a difference in “your world” and those around you.  For leaders, this includes encouraging the youth you serve to focus on their unequalled opportunity for accomplishment and for human service.

A leader that I admire greatly is Lee Brower.  I first got to know Lee through a coaching program that I was attending about 25 years ago. He produces a weekly video about leadership called Meaningful Monday.  On his April 8, 2024 Meaningful Monday video, he told the story of Jim Abbott.  Jim was a star pitcher that played in the Major Leagues.  But he did not have a right hand.  As a child, he was very passionate about baseball and his father encouraged him to practice the sport.  He learned how to pitch with his left arm and after releasing the ball would quickly transfer his glove to his left pitching arm.  He was so good that he made it all the way to the “Big Leagues” and was a dominant star.  He even pitched a no-hitter.

As mentioned, as a young child, Jim Abbott practiced his craft for hours and hours but he had one problem.  He couldn’t tie his shoe laces.  When you only have one hand, that’s a problem.  His third grade teacher, Mr. Clarkson, dedicated hours and hours to create a solution for Jim to be able to tie his shoes with one hand.  As Lee Brower describes in his video, that kind act of Mr. Clarkson turned out to be a life changing turning point for Jim.  No hurdle was too high and no dream was out of reach. Jim always treasured that memory of Mr. Clarkson who cared enough to help him.  Today, Jim Abbott pays that forward and teaches kids that every challenge can be met with a solution.

Leaders, are you being Mr. Clarkson?  Are you purposely encouraging youth to focus on accomplishing great things and to provide human service?  If not, no better day than today to start.

 

One Comment About Economics: Parliamentary Budget Officer Report on Budget 2024 – Report to Parliamentarians

 

On April 30, 2024, the Canadian Parliamentary Budget Officer (“PBO”) released a report entitled: Budget 2024 – Issues for Parliamentarians.  For people who have read a good chunk of the 2024 Budget, the content of the Report is largely a review but there are some good tidbits for consideration.

From the Report:

In Budget 2024, the Government announced $61.2 billion in new spending that was partially offset by $21.9 billion in revenue-raising measures. On a net basis, the new measures reduce the budgetary balance by $39.3 billion over 2023-24 to 2028-29.

Budget 2024 marks the third consecutive fiscal plan in which the Government’s new measures—even after accounting for revenue-raising and spending reviews—have exceeded the incremental fiscal room resulting from economic and fiscal developments. Indeed, the $39.3 billion in (net) new measures announced in Budget 2024 more than exhaust the $29.1 billion in new fiscal room over 2023-24 to 2028-29.

The Report goes on to discuss economic outlooks and confidence levels of whether or not the government will be able to maintain its fiscal targets. The confidence level is not good at about 70%.

Overall, it is very troubling that our government continues to spend without regard for the future, adding to our overall debt burden while leaving a mess for future generations to clean up.

Not good.

 

Bonus Comment – Quote From Sir Winston Churchill – Former British PM, Author, Artist – About Human Service

 

We make a living by what we get, but we make a life by what we give.

 

Yep, totally agree!  Leaders, are you “giving”?

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