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Kim G C Moody’s Musings – 1-1-1 Newsletter For October 9, 2024

 

Tax and Politics Are Like Wine and Cheese….But Perhaps a Little Less Politics Would Be Good

 

Tax and politics are like wine and cheese.  They are inextricably linked and impossible to do one without involving the other.  During election times, this link becomes rather obvious.  Promises here, promises there with many of them being very silly.  More on that later.

 

Given the close link between the two subjects, it is also inevitable that ideologically driven people – which is most of us – have opinions on tax.  Opinions, however, are not fool-proof and are often wrong.  People who are strong partisans will often blindly attach themselves to their political party’s views on taxation regardless of their appropriateness.  For example, “tax the rich” or “it’s not fair that the rich have all the tax breaks” are often rallying cries for left-of-centre partisans.  Even if you show such people how much tax the so-called rich are paying, they will often keep trumpeting their rallying cries.  It would often be more intellectually honest for such people to simply say “We want the rich to pay ALL the tax!”.  Yes, that is crazy, but it would be more honest.

 

Another silly opinion on tax that I often hear is that the solution for Canada’s fiscal problems is to “tax all of the money that is sitting offshore and that will solve Canada’s budget problems”. Pots of gold and rainbows that don’t exist. For sure we should chase that. Nutty despite all of the silly “studies” that certain think-tanks regularly pump out.

 

Ideally, politics and ideology would be minimized when introducing taxation policy in a country.  Without such minimization, taxation policy can become nutty quickly.  Here are some recent examples both federally and provincially:

 

1. The 2016 increase to personal taxation rates by the Liberals.  When they took office, the Liberals promptly introduced a new top-end bracket with a 4% increase.  This pushed marginal rates at the high end to over 50% in many provinces.  There was no sound policy reason to do so and ultimately this was all about politics.  And it didn’t raise taxation revenues as predicted. In fact, it was a revenue loser.  Not surprising.

 

2. The new prohibition on deductions for short-term rental owners who operate in a municipality that prohibits such rentals.  This measure is a very dangerous introduction of a rule that puts drug dealers and many other illegal business operators on a better footing than those evil short-term rental operators (since drug dealers and other illegal business operators would indeed be allowed to deduct their business expenses for tax purposes if they chose to report their income… which of course many do not). This measure is all politics.  And, frankly, one of the dumbest rules in tax law.

 

3. The new capital gains inclusion rate increase.  I’ve written about this many times.  This new measure was cloaked around having the so-called rich pay just a little bit more.  And to deal with intergenerational fairness.  And to ensure that employees are treated just as fair as those who realize capital gains since the latter have a “capital gains advantage”.  Ugly politics with all of it nonsense.  This measure is a simple tax grab.

 

4. B.C. Premier Eby recently promised to increase its province’s speculation tax on real estate (first introduced in 2018), if he gets re-elected during this month’s election.  This tax is supposedly in place to try to turn vacant homes into usable housing.  Other municipalities have followed suit and introduced similar taxes. Ditto with the federal government and the ridiculous Underused Housing Tax.  Are these taxes effective?  Doubtful.  For example, for 2022, the B.C. government reported that it collected $81 million from the tax (which doesn’t account for the administrative costs). B.C. Minister of Finance Katrine Conroy said that money raised from the tax had been used to build long-term rentals. Yeah, right.  I’d love to go pay a site visit to those long-term rentals.  Instead, this pittance of revenues is a nuisance and drag on productivity.

 

5. Speaking of the B.C. election, the B.C. Conservative Party recently promised to abolish tax on those who receive tips in the hospitality industry.  That appears to be following promises by the Presidential candidates in the United States.  Frankly, this is silly and poor policy.  If you abolish tax on tips, how about abolishing tax on other taxable benefits that are received by others outside of the hospitality industry.  That would only be fair, right?  Silly politics.

 

6. In 2022, the government of Canada introduced the Select Luxury Items Tax Act to charge purchasers of certain luxury cars, boats and airplanes an additional tax to the extent the price of the item was above certain thresholds. When introducing this new tax in the 2021 federal budget, Finance Minister Freeland said “It’s also fair to ask those who have prospered in this bleak year to do a little more to help those who still need help. That is why we are introducing a luxury tax on new cars and private aircraft”.  In its first year of implementation, the government raised only $137 million (less than budgeted) and incurred $19 million to administer the new tax.  Again, a pittance and pathetic politics.

 

7. The proliferation of personal tax credits – the children’s fitness credit, arts tax credit, transit pass tax credit of years past – are examples of blatant politics entering the tax system.  Thankfully these credits have disappeared but only to be replaced by other measures under the Trudeau government like the teachers supply credit.

 

I could go on and on.  The list is almost endless.

 

As the famous playwright George Bernard Shaw once said:  “A government that robs Peter to pay Paul can always rely on the support of Paul”.  Political parties and their politicians know this all too well. In tax, especially lately, there are many tax measures that fall into this category or are simply political pandering.

 

I know it will never be eliminated but it would be great for Canada if the introduction of simple and silly politics into our tax system was reduced.

 

“Virtual vs In-Person Meetings”

 

It’s been 4.5 years since COVID-19 saw the proliferation of the “laptop class” move from the office to their homes.  Many firms and government mandated it.

 

I have some strong opinions about the COVID era requirement to work from home.  Here’s the short story:  working from home exclusively is difficult for culture and team building.  For the team member, it can contribute to loneliness, boredom and stifle creativity. I don’t dismiss that you can be productive but spare me the usual retort of “I’m more productive at home”.  You’ll never convince me that you’ll be more productive than working together with teammates who are close to you, who push you, provide immediate sharing of ideas, have access to great mentors, etc unless you have no desire to grow.

 

Today, many are back at the office – except those that continue to glorify how “great” it is.  For those in the client service game, virtual calls continue to be a thing with some almost exclusively doing virtual meetings with their clients.  Again, count me as not a fan.

My dividing line for virtual calls is that they can be a great option if it would replace a normal phone call.  Not so if it is replacing an in-person meeting.  Nothing better than being able to shake a person’s hand, have a coffee over a conversation and establish a real relationship.  No “virtual coffees” for me, unless, again, it replaces a phone call.

 

I can just hear some people who might read this and think, “Ahhh, Kim, you’re just old and out of touch on this issue!”.  Well, perhaps I am.  However, I’m experienced enough to know that effective leadership requires the building of good and solid cultures.  Not to say it’s impossible to build a good culture using virtual-only platforms, but there’s a reason why us human beings have survived for millions of years…we are social creatures.  Being social enhances many positive aspects of our intelligence and life to flourish. Being social over digital screens certainly provides flexibility but it is very limiting in its ability to establish true relationships.

 

Leaders, what are your boundaries with this issue?

 

Canada Needs to Unequivocally Support Israel

 

Yesterday, October 7, 2024, was the one-year anniversary of the slaughter of roughly 1,200 Israelis by the terror group Hamas.  Accordingly, I’d be remiss to not comment on this so I’m using the “economics” section of my newsletter to briefly comment.

 

Over the past year, I’ve been disgusted by the glorification of that event and those that tried to justify it.  Murder, rape and terrorism are horrible ways to deal with conflicts. The rise of anti-semitism since that time is also troubling and disgusting.

 

The President of The Aristotle Foundation (the think-tank that I helped co-found and am the current Chair of), Mark Milke, expressed his views well and can be read here.  I’d encourage you to read it and see if you agree that the attack on October 7, 2023 was an attack against all of us and why Aristotle won’t be silent about it.

 

The eminent economist, Jack Mintz, also wrote a very compelling piece about this issue last week.  I’d also encourage you to read it.  It can be accessed here.

 

As a country, it’s my opinion that Canada needs to unequivocally support Israel.

 

Quote From Me About Working Remotely

 

“While remote work can certainly have its advantages, leaders must balance flexibility and autonomy with the need for visibility and engagement to ensure that teams don’t just work together but feel connected in their work and their contributions to help achieve the vision of the organization.  Not easy.”

 

Leaders, are you striking that balance?

 

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