- the source for market opinions


May 8, 2018 | The War on Stuff

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.

When a bunch of people who live in pricey digs on the tony side of Vancouver protested the other day, the moisters were aghast. The homeowners were outraged at a new uber-property tax on houses that have soared to more than $4 million in value. After all, they didn’t force the real estate market into orbit. That just happened. So why should they have to hand over a bunch of cash?

The kids saw it differently. Old, greedy rich people being whiny. When they have so much, why shouldn’t they pay extra? How is that not fair?

The wealth divide is a big topic these days. Wealthy people are getting moreso. Wage gains for the rest of society have sucked. So household debt in Canada has soared to over $2 trillion – people have been borrowing what they don’t have to get what they want. Now rates are rising and folks are pissed. Not going well.

A CBC poll just found 86% of BCers think society is divided along economic lines and 90% of those link their concern to housing. In that society, real estate = wealth. You can have $4 million in a liquid portfolio turning out $300,000 in low-taxed income and nobody cares. But move into a $4 million house producing no income, and you’re a social pariah who deserves a tax spanking. Paleo thinking. But it’s spreading among the political class.

Governments moving to the left, supported by a Millennial tidal wave, are thinking more about taxing wealth. After all, what’s left? The Trudeauites brought in a new, higher tax bracket so those making over $230,000 are now in the 53% zone. HST is punishing everywhere. The assault on income and spending is relentless, from gas taxes to health taxes to payroll taxes.

The political answer to demands from the deplorables for ‘equality’ is to nibble away at the savings, investments and assets of those who earned or built them. It’s what motivated Trudeau to slash the TFSA contribution limit from $10,000 back to $5,500 a year, despite it being the most democratic tax avoidance vehicle in the land. It was at the heart of Bill Morneau’s quixotic assault on small businesses, trying to siphon off retained earnings which doctors (for example) had amassed over the years to make up for no pensions. It’s also the motivation for the principal residence registry and the requirement we now face to justify an exemption from capital gains taxation. Governments want to tax stuff – real estate, financial assets making dividends or capital gains, and savings. Hoovering income is not enough. The mob wants more.

At least that’s how they see it in the hoods where dirt is a prized commodity. Nowhere has a government gone further down this road than in BC. Second properties are now heavily taxed in addition to property tax. Ditto for ‘empty’ residences which are often used for business or family purposes. There’s a speculation tax which has nothing to do with speculation, but is levied just for owning a piece of real estate, not for selling it at a profit. And the public approval rate for this is hovering around 90%.

Most worrisome to the people being gouged is that these taxes are retroactive. They apply to real estate that might have been owned for decades, slapped on at current valuations when prices are at an historic high. Most taxes attempt to modify behaviour, but these are just a hit on wealth. They don’t make houses more affordable to the crowd below. They merely confiscate.

That’s perfectly okay with the majority who feel entitled to things they cannot actually afford. The Dipper finance minister in BC has suggested the extra property tax on high-end properties might some day morph into a general wealth tax – which is exactly what folks owning nice houses fear. Tax based on possessions, not income nor the ability to pay, do not have a legacy in Canada. It’s Robin Hood stuff. The law of the forest with jolly green guys in codpieces firing arrows at the baron. Take from the rich, give to the poor.

Wealth taxes are the rage in academia among professors who have tenure, cannot be fired and have life-long defined-benefit pension plans (publicly-funded, so they need not save anything). The eggheads behind the NDP speculation tax have argued that property taxes should be jacked and income taxes reduced. That way the average guy who has saved nothing pockets more disposable income and the person who’s accumulated assets gets to fund it. The incentive to work and spend is increased. The reason to save and invest is destroyed.

So far, it’s a disaster. The empty house tax in Vancouver is costing a fortune to run and has resulted in no new rental units. The speculation tax on second properties has helped start a war with Alberta, and is now riddled with exemptions. Cheap houses cost more and dear ones are still out of reach. But the mob loves it, wants it, craves more of it.

If you like this stuff, you know how to vote. If you don’t, learn a lot more about tax avoidance, get a fat liquid portfolio and go live quietly among the masses.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

May 8th, 2018

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.