One Comment About Taxation – Bad Taxation Policy Causes Significant Behavioral Reactions

 

The deployment of public policy by government, such as the introduction of new laws, and its behavioural impact by its citizens is well studied.  There is no shortage of such studies / articles / papers and therefore most governments are well advised by public policy “experts” when introducing new laws.  Notwithstanding such academic studies and public policy “experts”, let’s apply a little common sense.  When governments introduce new policy that is so obviously bad / flawed, one can expect significant behaviour change and / or a backlash.

And that’s what we have with the proposed Canadian capital gains inclusion rate increase introduced as part of the 2024 federal budget.  For individuals, the capital gains inclusion rate is proposed to increase to 2/3 from its current ½ for any annual capital gains realized in excess of a threshold of $250,000 after June 24, 2024. For corporations and trusts, no such $250,000 threshold will apply.

When introduced, the government said the impact would apply to only 0.13% of taxpayers.  This message is both blatantly false and purposely misleading. The simple truth is that these new measures will impact virtually ALL Canadians in a direct and / or indirect way.  In a world where trust of government and media (who mostly parroted the misleading speaking points) is already low, such blatant misleading messages causes many, including me, to push-back and further not trust what is being fed to us by government. Notwithstanding, there will always be a significant part of the population that will lap up government pablum.  The government knows this and it counts on it in order to garner support and hope that that the people who backlash against such false messaging is not too great.

Similarly, with the government feeling the heat shortly after the introduction of these proposals, the Prime Minister took a cheap shot at accountants who apparently can cut a person’s tax bill in half if you’re able to hire one.  This statement is ridiculously false.  In addition, the PM started trumpeting the vacuous speaking point that the capital gains inclusion rate increase was necessary to deal with “inter-generational fairness”.  Nope.  Sounds good though.  In reality, the capital gains inclusion rate increase is a simple revenue generating measure to deal with out-of-control spending and an increased need to pay for it.  Such misleading statements again cause able-minded people to lose faith in government.

Another part of the messaging about the capital gains inclusion rate increase was that it was necessary for the so-called “rich” to pay just a little bit more. The so-called “rich” already pay a large and disproportionate amount of Canada’s overall tax revenues and those that trumpet “tax the rich” need to appreciate both how much the so-called rich are already paying and what behavioural changes will result by asking the “rich” to pay “just a little bit more”.

One significant consequence of asking the rich to “pay just a little bit more” is accelerated amounts of successful Canadians leaving Canada.  Certainly, I am experiencing that in my practice and I’m not alone.  As I have mentioned before, those people who say “don’t let the door slam you on the way out” should get up to speed on how devastating it is for ALL Canadians when a mass amount of successful people leave. It’s simply not good. When successful Canadians are continuously attacked by increased tax rates, attacks on income splitting from private businesses, threats of a wealth tax and inevitable other tax increases as a result of out-of-control government spending, such successful people will do what is necessary to get out of the line of attack and retreat to more friendly territory.

An unsubstantiated rumour floating around the internet over this past weekend was that the government of Canada was considering making it more difficult and expensive for such successful Canadians to leave Canada.  Even if such a rumour was true, mark my words:  successful Canadians will not be hindered.  If the analysis by such people is that they need to leave Canada, they will, regardless of any further hindrances that the government may introduce to make it more difficult. Frankly, making it more difficult to leave Canada would likely backfire and accelerate the pace of such departures.

The government needs to drop its poorly thought-out (and so obviously political) capital gains inclusion rate increase.  If it does not, a significant consequence will be reduced incentives for entrepreneurs / investors to invest in Canada resulting in less investment capital coming to or staying in Canada.  At a time when Canada desperately needs to deal with its domestic productivity emergency, this is the last thing that Canadians need.

If it does not drop this silly proposal, at the very least it should listen to the carefully thought-out recommendations by the Joint Committee on Taxation of the Canadian Bar Association and CPA Canada released on May 1, 2024.  Its recommendations – such as releasing the draft legislation quickly and extending the application date from June 25, 2024 to January 1, 2025 so as to enable affected Canadians better time to plan their affairs – are very well thought out by the dedicated and smart Committee members (full disclosure, I used to be a co-Chair of the Committee).

Albert Einstein famously once stated: “Whoever is careless with the truth in small matters cannot be trusted with important matters.”

Very true.  In Canada’s case, the careless introduction and disingenuous messaging (and subsequent vigorous defense) of the capital gains inclusion rate increase is causing even more Canadians to not trust this government. This has and will continue to accelerate significant behavioral changes by many Canadians.

Again, the government needs to drop the capital gains inclusion rate increase.

 

One Comment About Leadership – Leaders Make Mistakes

 

Georges Carpentier, a famous early 20th century boxer and author, once said: “Life is very interesting, if you make mistakes”. Similarly, the esteemed Sir Winston Churchill once said: “This is no time for ease and comfort.  It is the time to dare and endure”.

What’s the common theme in both famous quotes?  Well, the way I read and interpret them is that it’s ok to make mistakes especially if you dare and endure or, put another way, take risks.  It’s inevitable that all people – and especially leaders – will make mistakes.

In real life, I get it.  No one wants to make a mistake for fear of the consequences and possible embarrassment.  Perhaps the consequence of making the mistake is serious harm to your reputation, your finances, career trajectory, etc, etc.  I get it….it sucks to make a mistake.

Having said that, I find that when I make mistakes it is by far the most valuable fountain for learning. Yes, it can have negative consequences and be embarrassing.  But be damned if I’m going to make a mistake twice. Or perhaps put more realistically, I’m going to go out of my way to ensure I don’t make the same mistake again.

Many times, people put leaders in a position of adoration or infallibility.  When they see their leader make a mistake, their adoration and / or respect drops significantly. Often, I find people laughing at leaders’ mistakes and / or criticizing them.

In my view, such responses are often not worth the time to even respond to.  It shows a complete lack of understanding of how leaders take risks and learn.  Instead, I challenge such people to recall the famous New Testament story in John chapter 8 verse 7 which, even if you are not Christian or religious, has an important lesson for humanity.  The story goes that Jesus faced a mob that was eager to execute a woman caught in adultery. He put a stop to it with a simple challenge: anyone who has no sin in their life should step forward and throw the first stone. Of course, the mob quickly disbursed without executing the woman and no stones being thrown.

Very wise lesson to be learned here.  In other words, all humans make mistakes.  Criticism about making mistakes is unwarranted.  Instead, don’t be afraid to take calculated risks and make those mistakes.  Good leaders learn from them.  And often such mistakes are the most valuable things you’ll learn.

 

One Comment About Economics: Canada’s Governments Need to Get Its Spending Under Control

 

It’s not new and surprising but Canada’s governments at all levels need to get their spending under control.  While some left leaning economists and academics often promote the “revenue” side of the equation to try and get our annual deficits under control, all that does is encourage more and new types of taxation to sustain expenditure levels.  Instead, in my opinion and many others’, it is the expenditure side of the equation that needs particular attention.

As Travis Toews, a CPA and former Alberta Finance Minister, wrote in the Financial Post on May 7, 2024:

Last month’s federal budget has been called “the worst … in decades.” It is hard to disagree. Spending is clearly out of control, the cost of servicing Canada’s debt is ballooning and a balanced budget is not even on the horizon. In this, the feds are not alone. At every level of government, with few exceptions, Canada’s fiscal health is in a death spiral. Unless a new course is struck, the harm to Canadians will last for generations. Over the past nine years, the federal government’s net debt has skyrocketed. In 2015, it was $612 billion. This year, the budget projects, it will be $1.4 trillion. Of the large provinces, only Alberta foresees a surplus for the coming year. Ontario, Quebec and British Columbia expect deficits totalling a combined $26 billion. What can be done? We need to demand more responsible fiscal management from those we elect. There are four critical steps governments can take.

Mr. Toews goes on to explain the four steps as follows:

1.     Government must establish transparent, defensible and well understood fiscal anchors (or guideposts) and commit to them;

2.     Government spending must be brought under control;

3.     Spending needs to be prioritized; and

4.     We need to improve our business competitiveness.

Hallelujah!  Absolutely.  I love reading common sense.  Please speak up and take interest in the out-of-control spending by governments that will have a negative impact on future generations.

 

Bonus Comment – Quote From John C. Maxwell–– American Author, Speaker and Pastor – About Making Mistakes

 

“Don’t buy into the notion that mistakes can somehow be avoided. They can’t be.”

 

Yep, totally agree!  Leaders, are you learning and growing from your inevitable mistakes?

Hope you enjoyed this edition of 1-1-1…please sign up for my mailing list today.