Proposed luxury tax: Flexing political arrogance

There’s a perception that wealthy people don’t pay their fair share of taxes, at least to the federal government, which will impose a so-called luxury tax Jan. 1 on vehicles costing more than $100,000.

Finance Minister Chrystia Freeland on the budget item released in April:

“If you’ve been lucky enough, or smart enough, or hard working enough, to afford to spend $100,000 on a car, or $250,000 on a boat – congratulations! And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity. ...Those who can afford to buy luxury goods can afford to pay a bit more.”

How arrogant.

According to the budget, the amount of tax is the lesser of 10 per cent of the full value of the vehicle, or 20 per cent of the value above $100,000.

The chart attached shows several examples of calculations and two words come to mind: money grab.

The Canadian Automobile Dealers Association (CADA) has lobbied against the luxury tax, calling it a “Robin Hood” measure. In economics, this refers to redistribution of wealth.

Freeland falsely implies that buyers don’t already pay more tax when they spend more money: Just because the tax rate is the same from person to person, the amount of tax money collected is directly related to how much is spent. The buyer of a $180,000 car that’s taxed at 15 per cent pays a whopping six times as much tax as the buyer of a $30,000 car.

You see, there is a tax on luxury goods; it’s called sales tax. And now the federal government wants even more. But wait, it already gets more from the income tax paid by wealthier individuals.

So, that means the new luxury tax is a kind of second income tax. Given that the government is expecting only about $604 million in revenue over five years — the tax is also on boats costing $250,000 and more — the move appears to be politically motivated to please the crowd: Hey, look at those Liberals sticking it to rich people with a “luxury” tax. Most Canadians will give the government a pass on that because of the word “luxury,” but there are numerous issues.

First, the tax is calculated on top of other taxes — PST, GST or HST — and tax on tax is something that should infuriate every Canadian, especially residents and car dealers in British Columbia who, since April 1, 2018, have been coping with a provincial sales tax on luxury vehicles as high as 20 per cent. For them, the new federal tax on top of that will be a double whammy.

Second, the term “luxury” to most people equates to “unnecessary” or “wasteful.” The fact is heavy-duty pickups for hauling cattle approach $100,000 and as the years tick by, more non-luxury vehicles will be pushed across the threshold.

Third, according to CADA President Tim Reuss, and others, such taxes are “considered to be ineffective” and “detrimental to the industry.” B.C. dealers found this out quickly in 2018. Blair Qualey, president of the New Car Dealers Association of B.C., said the remittance of the luxury tax dropped by nearly one-third in 2019, due in no small part to the final point:

Many buyers don’t like paying more tax and can reduce that by spending less on a vehicle. Or, as Paul Killeen of Brian Jessel BMW in Vancouver said about the government, “Do they want people not to buy cars?”

That’s a great question. It seems to be lost in the political arrogance.