August 19, 2020 | Don’t Laugh

More Chrystia. More tax. After yesterday, it’s apparent they mesh. So, prepare.

The prime minister, in suspending Parliament, said the Covid crisis has created the opportunity for a big reset. ‘We can’t let it pass,’ he added. ‘This window will close.’

And this:

“We need to get through this pandemic in a way that gives everyone a real and fair chance at success, not just the wealthiest 1%. In other words, we need a long-term plan for recovery. A plan that addresses head-on the fundamental gaps this pandemic has unmasked.”

The plot grew murkier on Wednesday with news Trudeau plans sweeping changes to the social welfare system combined with his climate agenda. “The prime minister wants to go big,” a source told Reuters. “The taps are really going to be turned on,” said another. “That’s the biggest risk…”

On Bay Street, where they worry about money, debts, cash flow, growth and the GDP, the eyebrows went up. How did we go from running up an emergency, seat-of-the-pants deficit of $350 billion just to keep the lights on, to trying to close the wealth gap and heal the planet? “The direction he is taking casts aside… how to eventually exit from pandemic policies in the quarters and years ahead more in favour of pivoting toward layering on an expansionist strategy,” said Scotia economist Derek Holt.

Exactly. And if the government’s already overdrawn on its debt credit card by $1 trillion, where’s the dough coming from?

As for Chrystia, her ascension to finance minister – the only Cabinet job that actually matters – comes with oodles of baggage. Her last book was sub-titled “The New Global Super-Rich and the Fall of Everyone Else.” Before being elected she was giving speeches with this message:

“Today, we are living through an era of economic transformation, comparable in its scale and its scope to the Industrial Revolution. To be sure that this new economy benefits us all and not just the plutocrats, we need to embark on an era of comparably ambitious social and political change. We need a new New Deal.”

That’s the kind of language we’ve heard most recently from US ‘progressives’ like Bernie Sanders and AOC, which drives Republicans and Trumpers into a frenzy. It becomes clearer, quickly, that the departure of boring, pedantic, non-revolutionary Bill Morneau is a turning point in Ottawa. “We expect new Finance Minister Freeland will be more aligned with Trudeau’s longer-term objectives and thus are less doubtful over further federal spending,” says Citibank. The taps, in other words, will stay open. The goal is not to restore the economy, rebuild commerce and foster jobs and growth. It’s to enact a new deal, transforming the distribution of wealth – “addressing head-on the fundamental gaps this pandemic has unmasked.”

And what are those?

Simple. Average folks who spend what they earn, borrow big, save and invest little and could not survive a single month of Covid-created job loss will be supported. Those whose incomes, savings, investments, resources, assets, businesses or lack of debt have let them survive 2020, will be taxed. More.

Look no further than the financial markets. Asset values are back to pre-bug highs and investors have done just fine. Meanwhile the cost of debt has plunged, plumping the value of property and cutting the overhead on corporate loans, LOCs or investment borrowings. As this pathetic blog prophesized months ago, the virus would make the wealth gap expand – not because rich people are exploitive, but because not-rich people are pooched. When you spend what you make and borrow the rest, you’re vulnerable to shocks. And Covid was the mother of all jolts.

Okay, what now?

The maiden (can I say that?) budget of Chrystia will likely be in October. Even before Bill left for his trip under the bus economists and accountants, two of the funnest groups around, were expecting these changes to occur:

• A new tax bracket, above the one Trudeau created in 2016, targeting your neighbourhood anaesthesiologist, lawyer and CEO. Currently the top 0.6% of taxpayers (median income $477,000) pay about 22% of all taxes. That’s only 236,000 people. Blood. Stone. Figure it out.
• An increase in the capital gains inclusion tax, which is now 50%. Pushing that to 75% – a huge jump – would raise about $8 billion a year (until investors started changing their habits). By the way, eight billion is 2% of this year’s budget shortfall in Ottawa. Looks good. Does diddly.

What else might occur?

A hike in the GST makes sense form a revenue-generating standpoint, but that’s essentially a tax on middle-class spending. An end, partially or fully, to the tax-free status of residential real estate profits also has logic, since the exemption has made homes unaffordable. But that’s political suicide, too. Also being considered is a financial transaction tax, which sounds benign until you understand it would apply to every RRSP, TFSA and company pension deposit or withdrawal. That would also wound the Canadian equity market where, for example, the Canada Pension Plan keeps a few hundred billion dollars tied up. There could be an inheritance tax levied, beyond the taxable nature of all assets upon death. Dead people apparently don’t vote a lot.

Well, here’s another candidate: a special Covid tax. It could be on income. It might be on wealth. It would be labelled ‘temporary’ as income tax was in 1919. Ha.

Some of these we could have ruled out immediately with Bill running Finance. But now we have an advocate of “ambitious change” at the controls. Says a Lib who’s worked with Freeland: “She is a social interventionist activist.”

Whatever that is, it sounds painful.

Garth Turner August 19th, 2020

Posted In: The Greater Fool

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