Auto issues that received limited play in the run-up to the Oct. 21 federal election could loom large in Canada’s 43rd Parliament, starting with a promised 10-per-cent luxury tax the country’s car dealers say could affect 30,000 sales.
Part of the Liberal platform announced in September, the tax on vehicles over $100,000 appears likely to get the New Democratic Party support Justin Trudeau’s minority government will need to pass laws, even to stay in power.
The levy is already raising fears among dealers of high-end vehicles.
“It would gravely affect our business,” said Pfaff Automotive Partners CEO Chris Pfaff, whose Torontobased group includes Porsche, Audi, BMW, Mercedes and McLaren brands.
Pfaff said the impact will be felt most by the people who sell and repair luxury cars.
Canadian Automobile Dealers Association economist Oumar Dicko has calculated the tax, which would raise $600 million a year, will target more than 92 models and directly affect 30,000 annual sales. The tax also would apply to other purchases, including boats and planes for noncommercial use.
“We are very concerned that the proposed tax will impact the investment that dealers have already made, and with the unprecedented disruption and changes in our industry, the luxury tax will add an additional burden on the industry as a whole,” said Dicko
In a report released in November, Scotiabank Economics called the tax “punitive.”
“A targeted tax on luxury automobiles is punitive. These vehicles are not inherently a sin purchase, nor do they create negative externalities that would warrant government intervention to curb purchases. In fact, local purchases benefit regional economies, while the luxury segment is a seedbed for innovation that trickles down to the rest of the sector,” the report said.
The burden could be highest in British Columbia, where it would combine with provincial taxes of 15 per cent on vehicles with a transaction price of $125,000 to $149,999, and 20 per cent for $150,000 and above.
Pfaff said the luxury taxes and GST would add $72,000 to the price of a $200,000 vehicle in B.C.
“You might as well close up the McLaren store in Vancouver. I can’t imagine the business sustaining itself,” he said.
NDP MP Brian Masse, the party’s industry critic, said the party will want to review details but he could “definitely” see the tax passing, especially since it will mainly affect foreign vehicles and not Canadian-built cars.
Rebekah Young, director of fiscal and provincial economics at Scotiabank, said she can see Liberals easily moving ahead with the tax in an effort to win NDP and Green support in the House of Commons.
The levy is just one auto sector issue in which the Liberals will need backing from the NDP, which emerged from the Oct. 21 federal election with 15 fewer seats but vastly more power after the Trudeau government failed to win a majority.
A PLAN FOR AUTO INVESTMENT
The NDP was the only party to pitch a national auto strategy in its platform, said Masse.
“The Liberals and the Conservatives did not propose anything significant for the auto or manufacturing sector in this election.”
Expect the NDP to renew its call for a national plan when Parliament resumes. Its strategy, building on recommendations from a 2018 report by former Toyota Motor Manufacturing Canada head Ray Tanguay, would include consultations with business and labour and set aside $300 million to spur investment in a sector steadily losing production jobs.
FUEL CONSUMPTION, PART 1
Canada has inserted itself into the battle between U.S. President Donald Trump and California over fuel-economy standards set by the previous Obama administration. The Liberal government signed a memorandum of understanding with California in June to align with the state’s targets and zero-emission-vehicle program.
That agreement notwithstanding, there is little this country can do if the Trump government succeeds in easing the limits for 2021-2025 vehicles. Canada has long moved in lockstep with the United States on emissions standards and lacks the clout to require tougher limits for cars sold north of the border.
For its part, Canada’s auto industry is pressing for one set of standards across the continent.
FUEL CONSUMPTION, PART 2
In the longer term, the government wants all vehicles sold in Canada to be zero emission by 2040. It’s an ambitious target that will likely require more than the rebates of up to $5,000 in place since May for certain vehicles.
Again, the NDP stands ready to back additional measures, that is if they’re part of a national auto strategy and favour Canadian-built models. Chrysler’s Pacifica is currently the only vehicle made in Canada that qualifies for a rebate.
“There should be a weighted strategy for domestic vehicles and for multi-passenger vehicles that have better environmental impact, especially for urban areas,” Masse said.
“If their policy is going to be centred, which it is right now, on buying foreign vehicles, we don’t support that.”