Senate QP: Morneau defends his proposals

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While the furore over the proposed tax changes continues apace, the Senate took the opportunity to hear from finance minister Bill Morneau, which would be largely about those proposed changes. Senator Larry Smith led off with a litany of accusations about deficit spending and the proposed tax changes, the notion being that the government was bumbling. Morneau noted the return to growth rates that we haven’t seen in ten years, and that their deficits were lower as a result, and going forward, they were looking to keep the growth going, so that meant trying to make these tax changes in order to close the unintended consequences of rules that didn’t help with economic aim. Smith then insisted that the government hadn’t done economic modelling for two of their three proposed tax changes, and how people could have confidence in the process. Morneau took him back to the stats showing that these Canadian Controlled Private Corporations have grown without self-employment rates increasing at the same rate, and how these measures were being used to shield tax income.

Senator Mockler asked about the plans for the Senate finance committee to examine the measures, and why they didn’t do an economic assessment of the plans beforehand. Morneau reiterate that they identified these measures a while ago and have gathered tax experts to examine the measures that were important to address. Morneau noted that they found that only 1.7 percent of CCPCs hold 87 percent of passive investment income, and that it benefitted the wealthiest, and he hoped that redirecting those passive investments to active ones could mean half a percentage point of GDP growth.

Senator Day wondered what changes the government was planning to make to their proposals in order for the finance committee to narrow the focus of their study. Morneau said that they hadn’t yet made any decisions, but they have identified five key themes that they needed to address — maintaining the ability to invest in business, intergenerational business or farm transfers, the ability for women to save for maternity leaves, maintaining the low small business tax rate, and not increasing the administrative burden for compliance. He added that there are also concerns about double taxation on death, these kinds of unintended consequences would be taken into account, as well as grandfathering some issues.

Senator Black relayed concerns he’d heard about the proposals on innovators and angel investors, and Morneau said that they would carefully evaluate what was being said to ensure that what they were getting was valid — nothing that not everything that has come forward has been the unvarnished truth.

Senator Lankin asked about taxation on recreational cannabis versus HST on medical cannabis, given that other prescriptions are not subject to HST. Morneau listed the broad goals of legalisation, and noted that taxation was part about facilitating those goals, and that they didn’t want to over tax in order to keep the black market in business, but when it came to her specific question, he wanted that to be a call of the department of health.

Senator Wells worried about the litany of new taxes that seemed to be paying for the government’s spending promises, and Morneau disputed the characterisation of the tax changes to date, laying out the facts that the changes to date have lowered tax rates for the middle class, and that the new proposed changes would not raise small businesses taxes.

Senator Tkachuk asked about a tax proposal that would affect lawyers billing for work in progress, and Morneau explained that this was different from the other proposals and it was about aligning expenses with income and that there would be an adjustment period.

Senator Massicotte asked about the neutrality of revenue, and Morneau explained how the incorporation advantages have more significant benefits in the long term, and how that has expanded over the past generation, and that the spread between the small business tax rate and the top income tax rates has created that incentive to use these tools.

Overall, this was by far a better venue for Bill Morneau than Commons QP is, in part because it’s a calmer atmosphere, but also because the lack of the 35-second clock lets him go into a better explanation for the issues, allowing a bigger picture discourse as well as a better explanation of the five themes that the consultations have come up with. All of that is pretty much impossible in the Commons, especially in the face of straw men, conspiracy theories, and blatant falsehoods about what the changes would mean for most small business owners, all for the sake of playing to the cameras. Two of the other reporters up in the gallery with me noted that they wished Morneau was like this in Commons QP, but I’m not sure that’s possible given the way that Commons QP is structured.

Sartorially speaking, snaps go out to Senator David Wells for a tailored black suit with a crisp white shirt and a grey striped tie, and to Senator Diane Bellemare for a nicely tailored medium grey jacket and skirt with a white top. Style citations go out to Senator Ratna Omidvar for a grey, moss and pumpkin patch-patterned smock, and to Senator Larry Smith for a taupe suit and tie with a butterscotch shirt. Dishonourable mention to Senator Elizabeth Marshall for a mustard jacket with a black patterned dress.