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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

September 25, 2017 | The Overlords

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

It’s a dinner I’ll never forget.

As a gesture of thanks, three days after the election in which I was punted as an MP and cabinet minister, I asked the dozen senior staff in my office at Revenue Canada out for a meal. Nice restaurant overlooking the Rideau Canal. So long.

I sat and reflected on my path ahead. No job. No pension. No prospects. A house in the wrong city. No fortune. No offers. No security. No severance. Across from me, merrily munching on a Salisbury, sat the deputy minister. When I am pounding on doors in Toronto, looking for a break, I thought, he’ll still be here. Guaranteed job, government-paid car and driver, big bucks, long vacations, group benefits and a lifetime defined-benefit pension plan, indexed.

The contrast was stark, and dark. On one side the politician – elected on public whimsy, drenched in risk – and on the other the bureaucrat – paid richly by the public, yet strangely unaccountable.

This may help explain our current circumstances. There’s a huge overlord class of public sector workers in Canada. More than 3.5 million people, or 24% of the working population. For them, risk is foreign, benefits are assured, salaries are guaranteed, with the security of a life-long string of monthly payments after they retire. In comparison, two million plumbers, lawyers, farmers, doctors and hair salon owners have no wage security, no pensions and no paid holidays. Bureaucrats in the Department of Finance have been calling them tax cheats and loophole-abusers lately because the government wants to increase taxes, but not decrease spending.

Federal civil servant pensions cost a lot. The average retirement pay-out for a federal worker is $1.2 million after 35 years on the job. The current shortfall (called the unfunded liability) is $4.5 billion. So Ottawa has to find about $415 million in additional revenue every year for the next 14 years to meet its obligations to retiring workers. By whacking small business owners (who have no pensions) as the government is proposing, an estimated $250 million will be realized.

My former deputy minister, who made a very large salary, did not need to save for retirement. He knew he’d receive a monthly payment based on the five best (highest-paid) years of his career, as well as retain the benefits of the public service health plan. No need to worry about market conditions or fluctuating RRSP and TFSA assets, since all future payments were legislated and funded by the taxpayers. The car and driver he enjoyed daily were not taxable benefits, either. Nor did he ever have to stand for election and throw his fate into the hands of the deplorable masses.

Public workers with DB pensions can also split that income with a spouse as a mechanism to reduce the overall tax bill in retirement. If that constitutes their only income, it’s not hard to split it down to the 20% range – while private sector people cashing in RRSPs may face bills twice as steep. Ironically, the T2 gang are about to strip drywallers, family doctors and haulage contractors of the same benefit, even though none have guaranteed pensions.

In one week the short period of time the government allowed for debate on these major tax changes will be over. Small businesses retaining earnings to tide them over the lean years or to fund a retirement will face a tax rate of up to 73%. And while unrelated men and women who start companies can share income in the form of dividends, if they get married it’s called ‘income sprinkling’ and becomes illegal. Entrepreneurs and medical people who played by every rule in the book, living frugally so they could save for retirement within their corps, are now pilloried and demonized by the very crew who wrote the rules.

Are there some people who hide behind incorporations and manage to shelter money the government desperately needs to pay pensions of federal workers? You bet. But there may be better places to get it than whacking all the folks who, collectively, create half the jobs in Canada. Making the federal pension plan fairer would be a start. Or even taxing the windfall and unearned capital gains on residential real estate.

Most of the people about to be squished by Mr. Morneau are not, like him, 1%ers. Most have no job security, no paid time off, no maternity leave, no benefits, and they sure don’t have access to money for life.

Yes, let’s make the system fairer for the middle class. Now you know how.

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September 25th, 2017

Posted In: The Greater Fool

One Comment

  • Avatar Deb K says:

    This is not right – why are these high ranking bureaucrats and certain high ranking civil servants GIVEN these entitlements in such forms as free benefits and tax loopholes to abuse and small business or incorporated business ARE subjegated to funding those that have so much. Excellent article. More people need to be aware of these inequalities and in some cases atrocities. Thank you!

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