As the federal government stares down a deficit projected to be 10 times larger than what was forecast before the COVID-19 pandemic, the Canadian Automobile Dealers Association (CADA) is lobbying policymakers against implementing any new taxes.
“As much as there’s an understanding that somehow a lot of the current expenditures will have to be financed, the introduction of new taxes right now would be very counterproductive in whatever shape or form those might be,” CADA CEO Tim Reuss said. “That’s a message that we’re trying to get across as the government, rightfully so, discusses how to make the public finances whole again over time. But now’s not the time to be thinking about new taxes.”
According to an “economic and fiscal snapshot” given by now-former Finance Minister Bill Morneau on July 8, the federal government expects to run a deficit of $343.2 billion for 2020-21, compared with a projected $34.4-billion before the pandemic, according to CBC News. Much of that rise is a result of about $212 billion in spending on economic support measures, in addition to about $81 billion attributed to the pandemic’s impact on economic activity.
Federal revenue was expected to decline from a projected $341 billion in 2019-20 to $268.8 billion in 2020-21, Morneau said, as individual and corporate income tax revenue declines. That will put pressure on the federal government to find ways to address a ballooning deficit while also continuing to spend in an effort to prevent the most dire economic and health scenarios from unfolding.
Dealers have long fretted about the sales impact of increased taxes, particularly a federal tax on high-end luxury vehicles that was included in the Liberal Party’s 2019 platform. The tax would levy a 10-per-cent tax on vehicles, boats and aircraft valued above $100,000.
CADA has lobbied against the proposal ever since, arguing that the tax would be “similar to imposing tariffs” and would reduce sales and ultimately lead to less tax revenue for the government. The proposal had yet to become law by the time the pandemic took hold in Canada, at which point the government’s priorities shifted to containing the spread of the coronavirus and limiting the economic fallout.
“There might be a bigger push for [the luxury tax] now because the government is pressed for revenue,” auto analyst Dennis DesRosiers said. “We don’t know how big the deficits will be, but they’ll be the biggest deficits in the history of the world, and they’ll be out looking for tax dollars.”
Such a luxury tax would likely depress sales of new luxury vehicles, already under strain during the pandemic’s economic fallout, DesRosiers said. The tax would raise uncertainty for luxury buyers, particularly those who are on the fringe of being able to afford a higher-end vehicle, he said.
“It couldn’t be a worse time for the market to introduce a premium luxury tax now,” DesRosiers said.
Christopher Pfaff, CEO of Pfaff Automotive Partners, said the move would cut into revenue as many customers choose to not buy a high-end vehicle or import one from outside the country. Pfaff owns several luxury dealerships in Ontario and British Columbia.
“You need to be smart about how you tax and try to rein in these deficits we’re accumulating,” he said.
It did not appear such a tax was imminent.
Speaking at the CBC town hall earlier this year, Morneau said the federal government was not considering raising GST or other taxes. Instead, it was focused on “preserving our economy for the future, making sure that we can get back to a vibrant place.”
“We know that we are going to need to face up to those challenges. We also recognize that raising taxes is not what Canadians want us to do.”
Reuss said he does not believe the federal government’s stance has changed since then, even as it continues to lobby lawmakers on the issue.
“I don’t think it’s necessarily shifted. We’re just making sure that there’s an understanding that it would be extremely counterproductive right now to introduce any type of new taxes,” he said.