Parliamentary budget director Yves Giroux says the federal government’s planned luxury tax will reduce sales of cars, boats and planes by more than $ 600 million a year.
The PBO on Thursday released an updated assessment of the new tax, and Mr. Giroux later appeared as a witness before the finance committee of the House of Commons, which is studying the government’s latest budget legislation, the C-19.
The 440-page budget bill would enact a new luxury tax on the retail sale of cars and planes for $ 100,000 or more and new ships that cost $ 250,000 or more.
Finance committee members have heard widespread concerns about Canadian corporate tax with connections to all three sectors, whether through manufacturing or related services such as marinas.
NPD financial critic Daniel Blaikie said his party supports a luxury tax, but is open to amendments that could ease the impact on domestic manufacturing, especially in the aerospace sector.
“We hear the arguments about unintended consequences,” he said in an interview. “I think the industry would rather not have the tax at all. But we’ve also heard from them that if it goes ahead, there are ways to do that that would have less of an impact on aircraft production in Canada, though that the objectives of the tax are achieved “.
Thursday’s report follows an estimate by the PBO released last May. The updated report includes a slightly revised estimate of the new revenue that will be collected once the tax is fully implemented: $ 176 million in 2024-25, more than last year’s projection of $ 159 million.
The report also includes a new estimate of the expected drop in sales in each of the three categories. In 2024-25, the tax will reduce aircraft sales by $ 31 million, car sales by $ 123 million and ship sales by $ 473 million, for a combined reduction in sales of about $ 628 million. This total is expected to increase each year.
The PBO report includes several warnings, including the fact that the actual volumes of vehicle sales in these price categories are unknown. The PBO also notes that it is difficult to predict how consumers may change their shopping habits in response to the new tax.
Mr. Giroux told lawmakers that his review does not include an estimate of the full economic implications of the tax.
“Obviously, not everyone buys a boat or a plane. Certainly not. And I’m not in the market for such an expensive car,” he said. the extent to which this will happen is an estimate, and because it is a niche market, it is not easy to estimate. “
The government first announced its plans for the 2021 federal budget tax and promoted it to the party’s election platform later that year.
Finance Minister Chrystia Freeland has told lawmakers that officials in her department are investigating industry concerns.
Adrienne Vaupshas, a spokeswoman for Mrs Freeland, defended the tax on Thursday, saying in a statement that only a fraction of Canadians buy private jets or yachts. “It is fair and just to ask the richest to pay their fair share,” he said.
Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers Association, said the PBO has probably underestimated the impact on sales that the tax will cause and is therefore overestimating the amount of new tax revenue. .
He also noted that cars that cost more than $ 100,000 include zero-emission vehicles, so the new tax undermines the government’s own climate plans.
“If the government takes itself seriously when it comes to achieving its zero-emission vehicle adoption targets, you just can’t tax consumers who are considering making that purchase,” he said.
Another concern, he said, is that the thresholds will not be indexed to inflation, even if the purchasing power of $ 100,000 decreases every year.
Earlier this week, the Canadian Manufacturers and Exporters Association and other industry groups sent a joint letter to Prime Minister Justin Trudeau and Mrs Freeland urging the government to reconsider the tax.
“We recognize that you and your colleagues face many challenging tax pressures,” the business groups wrote. “However, the proposed Luxury Tax Act will penalize manufacturers, operators, distributors, pilots and suppliers, and negatively affect jobs. It will also have significant repercussions on the supply chain, in the industries of maintenance, repair and overhaul and the entire aviation ecosystem at a time when they are just beginning to recover from the devastating effects of the COVID-19 pandemic. “
Conservative MPs said on Thursday that PBO figures reinforce concerns about the bill.
“The report confirms that this tax will have a significant negative impact on industry, particularly navigation,” said Conservative MP Adam Chambers, adding that the PBO did not attempt to calculate the negative impacts of diversion in areas. such as tourism. “This is not a sound economic policy.”
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