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Morneau’s handling of tax reform will be a make or break issue for government

0 Comments 11 October 2017

The Finance Department can win any battle when there is a broad split in public opinion on a tax measure.

At this point, there do not seem to be many voices siding with the Department of Finance. So Finance Minister Bill Morneau’s handling of the issue will be a make or break issue for the government.

During the GST fight, the finance minister’s viewpoint eventually carried the day. This time, Finance is strongly in favour of a position that has the potential to create an electoral problem for the government.

By SHEILA COPPS

First published on Monday, September 11, 2017 in The Hill Times.

OTTAWA—Summer caucuses are always hot. And when you combine heated politics with a sunny West Coast location, the temperature often rises.

After more than two months away from the Ottawa cocoon, Members of Parliament are eager to repeat the views they have heard in their ridings. Sad to say, most people don’t make appointments with Parliamentarians simply to tell them what a great job they are doing. On the contrary, riding office hours are usually a continuum of complaints about government policies, directions, and future plans.

The roughest critics tend to be party members. That may seem counterintuitive, as most political activists are usually committed to defending their party of choice. But inside the party, local supporters see themselves as a mirror of their community. They relish the role of the canary in the mine, warning their party if it appears to be taking a wrong turn that has raised the ire of the electorate.

No government can expect the support of all of the people all of the time. But a measure of success is achieved when there are complainants on both sides of any issue. Political equilibrium is in balance when no single issue takes precedence over all the others.

Both factors for a happy electorate were missing from the discussion of proposed tax changes that took centre stage at the recent Liberal caucus meeting in Kelowna.

The last time a tax measure was a key topic at a British Columbia Grit caucus meeting, was in the lead up to the 1993 election, when members revolted against a plan to keep the hated Tory goods and services tax.

At the time, it made tremendous political sense to fight the Progressive Conservatives unpopular tax. Brian Mulroney’s government had revoked an existing manufacturers sales tax, and replace it with a levy on all goods and services. But if Liberals formed government, some wanted to keep the revenue coming.

From an economic perspective that made sense, because it secured ever-increasing government revenues based on consumption, not production. Liberal supporters of the tax also argued that undoing the GST would be akin to unscrambling an egg. The Conservatives had already done all the heavy lifting, with the imposition of the despised measure. Why not simply shut up and reap the benefit?

That pre-election Vancouver caucus meeting proved to be the flashpoint for a heated debate. The majority of caucus members supported abolition of the GST. A smaller number, including the finance critic and supporters, urged the caucus to keep the tax. Liberal leader Jean Chrétien listened carefully to both sides.

At the end of the meeting, he told the media that the majority viewpoint to abolish the GST carried the day.

But he also expressed personal trepidation about whether the decision was the best long-term strategy for the financial health of the country.

Last week’s meeting in Kelowna highlighted eerily similar internal schisms. The broad-based coalition of small business and professional groups opposed to the incorporation tax changes, carried the day on the summer barbecue circuit.

A joint campaign by doctors and other small business owners appeared to have won the day in their public opinion battle. A delegation of women physicians even descended on Kelowna to make their case, claiming the income-sprinkling prohibition would force some female doctors to abandon their chosen profession.

Finance Minister Bill Morneau did his best to counter that, repeating his view that doctors should not get better tax breaks than nurses or police.

But nurses and police are not self-employed while doctors are.

Like other small business owners, they have no access to company pension plans, maternity benefits or sick leave. Many utilize tax avoidance to fill this financial gap.

The proposed changes would directly impact the small business sector in every community in the country.

The Finance Department can win any battle when there is a broad split in public opinion on a tax measure.

At this point, there do not seem to be many voices siding with the Department of Finance. So Morneau’s handling of the issue will be a make or break issue for the government.

During the GST fight, the finance minister’s viewpoint eventually carried the day.

This time, Finance is strongly in favour of a position that has the potential to create an electoral problem for the government.

The Kelowna message was clear. From a caucus perspective, constituents have spoken and they do not support the majority of the proposed changes.

It remains to be seen whether history will repeat itself.

 

Sheila Copps is a former Jean Chrétien-era cabinet minister and a former deputy prime minister. Follow her on Twitter at @Sheila_Copps.

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© 2017 Sheila Copps.