One Comment About Taxation – Canadian Windfall Taxes on Grocery Companies

Last week, in what can only be described as an act of desperation, to try to prop up his government’s free-falling polling numbers and a further attempt to keep their coalition partner – the NDP – happy, the Prime Minister of Canada and his cabinet colleagues announced that the government requested the five largest grocery companies, – Loblaw, Metro, Empire, Walmart and Costco – to come up with a plan to stabilize food prices by Thanksgiving. “If their plan doesn’t provide real relief for the middle class and people working hard to join it, then we will take further action, and we are not ruling anything out including tax measures,” said Prime Minister Trudeau during a strange news conference.

I don’t have enough space to write how silly windfall taxes on grocery companies or other industries are.  I have been very vocal in other spaces, like LinkedIn, that the recent Canadian windfall taxes on banks and insurance companies – cloaked under the ridiculous marketing phrase of the Canada Recovery Dividend – was poor taxation policy. Ditto for European windfall taxes on oil and gas companies, such as the UK’s tax.

Has Canada ever imposed a windfall tax on companies – like grocery companies – that were perceived to be making windfall profits?  Indeed, it has.  The Business Profits War Tax Act of Canada became law in May 1916 (which was before the introduction of the personal income tax).  It was aimed at businesses who made profits of over 7%.  If they met that threshold, they were subject to an ascending tax rate and had to file yearly tax returns. The tax was introduced to help finance Canada’s World War I effort (Canada’s finances were in rough shape because of the war), and to help stifle the perception that some businesses – like grocers – were taking advantage of people who couldn’t afford it and that the “rich” should contribute more. The introduction of the personal income tax followed suit in September 1917.  (For an interesting digest that accounts for the introduction of the personal income tax, have a look here.)

When WWI ended in 1918, the Business Profits Tax and personal income tax had done little to help Canada’s finances, and thus the expected temporary measures morphed into permanency (the Business Profits Tax ultimately served as a precursor to the corporation income tax).

Canada’s history with windfall taxes and taxes in general is interesting with lots to learn from. The current threat by our country’s illustrious PM to tax grocers is political theatre at its worst.  It would behoove the government to take some history lessons before threatening to introduce useless windfall taxes.  They do nothing to deal with the perceived problem, and the costs incurred by the payors are passed along to the consumers.

Windfall taxes, however, might be good politics to pander to a political party’s voter base.  But Canadians don’t need more useless theatric political performances. Instead, the government should get its financial house in order. And learn from history…it’s always a great teacher.

 

One Comment About Leadership – Being Resilient

One of the core competencies for being an effective leader is to have resilience.  It’s a must.  So what is resiliency?  Well, there is no shortage of papers, articles and videos about resiliency.  A good TED Talk by Sule Kutlay Gandur on this topic can be viewed here.  In my view, similar to Sule’s views, resiliency must include the following:

• Being prepared for change through forward-thinking;
• Having the ability and courage to quickly deal with change or challenges by understanding the situation;
• Ability to be resourceful;
• Being vulnerable;
• Embracing a positive and optimistic attitude about the challenge;
• Being realistic about the situation;
• Being flexible; and
• If the response isn’t working, then being able to quickly re-evaluate and respond again, but differently.

Leaders face multiple stresses and challenges each day.  So being able to execute the above requires being physically and mentally healthy. I have found that having a good morning routine is key to being physically and mentally fit (along with being well-prepared for the day).  My routine includes the following:

• 4:30 am wake-up;
• 5:00 am short meditation;
• 5:30 am workout (usually at Orange Theory);
• 6:30 am – 7:30 am – prepare for the day, including making a list of three crucial to-dos (anything more than three typically doesn’t get done) and reflecting on my list of five things that I am grateful for in the prior week (that I have written down once per week on Sunday night); and
• Ensure that I am well-nourished with healthy food to get the day off to a great start.

The above has worked for me for quite some time, with some adjustments here and there.  Do you have a morning routine?  If not, I’d highly recommend it.

Resilience is crucial.  Leaders, be intentional about sharpening your resiliency skills.

 

One Comment About Economics – Payback Period for Stellantis and Volkswagen Subsidies

In my July 26, 2023 newsletter, I wrote about the Stellantis and Volkswagen subsidies provided by the federal government…a whopping $30 billion (rounded).  Yep, $30 billion!  For a country the size of Canada, taxpayers are handing over a tremendous amount of money.  When announced, the government was trumpeting that the payback period would be “less than five years.”  For many, that was a suspect statement.  And now, the Office of the Parliamentary Budget Officer (“PBO”) has poured cold water on that statement.

In a September 12, 2023 Report, the PBO analyzed the payback period and compared it to the government’s estimates.  The report states the following:

We estimate that federal and provincial government tax revenues generated from the Stellantis-LGES and Volkswagen EV battery manufacturing plants over the period 2024 to 2043 will be equal to the total amount of production subsidies. That is, the break-even timeline for the $28.2 billion in production subsidies announced for Stellantis-LGES and Volkswagen is estimated to be twenty years, significantly longer than the Government’s estimate of a payback within five years for Volkswagen.

 What’s also interesting is that page 9 of the full Report states that the payback period of 20 years does NOT include interest charges that will be required to finance the subsidies nor does it include a present value analysis.  Wow.  So, of course, the actual payback period will be significantly longer.

Subsidies are suspect economic policy at the best of times.  The VW and Stellantis subsidies are surely the worst of the worst.

Bonus Comment – Quote From Nelson Mandela, South African Anti-Apartheid Activist and Politician About Resiliency

“The greatest glory in living lies not in never falling, but in rising every time we fall.”

Yep…totally agree!

 

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