Rosenberg: Ottawa's tax reform to set off the perfect storm
The federal government’s proposed changes to taxes for private corporations “make no sense” and will increase the chances of a Canadian recession, according to Gluskin Sheff Chief Economist David Rosenberg.
“The consequences of these proposals are going to be very far reaching,” the influential economist told BNN in an interview Tuesday. “We are going to add on another layer of complexity to the Canadian economy right now with these tax changes -- that makes absolutely no sense to me, whatsoever.”
Despite the recent strength of Canada’s economy, Rosenberg says the outlook for Canada remains precarious as the economy braces for the impact of a rising loonie, a housing slowdown and continued uncertainty about the future of the North American Free Trade Agreement.
“The risk of a recession is obviously heightened by these tax changes,” he said.
On top of that, small businesses in Ontario have already absorbed higher provincial taxes and could soon face a 30 percent hike in the minimum wage and rising electricity rates. The circumstances are eerily similar to the early 1990s when Ottawa brought in the controversial Goods and Services Tax that pushed Canada’s economy into a recession, Rosenberg said.
“They are creating a perfect storm here,” he argued. “The GST wasn’t supposed to generate a recession, right? But it was coupled with what was happening [in Ontario] at the time – anti-business measures there, a soaring Canadian dollar, firming Bank of Canada policy, [and] of course back then we had trade uncertainty associated with the FTA (Free Trade Agreement with the U.S.) being created. Today, it’s related to NAFTA being destroyed.”
The federal finance department announced its strategy to tighten up tax rules in July.
The federal government says it wants to restrict the ability of business owners to lower their tax rate by “sprinkling income” to family members; limit the use of private corporations to make passive investments in assets like stocks or real estate; and limit business owners’ ability convert a corporation's regular income into capital gains, which are typically taxed at a lower rate.
Finance Minister Bill Morneau says he wants to eliminate tax loopholes used by small business that are unavailable to working Canadians.
But Canada doesn’t need a “fair” tax system, it needs a tax regime that will promote economic growth, according to Rosenberg.
“You want to have a tax system that isn’t level, actually,” he told BNN. “You want to have a tax system that promotes risk taking and growth if actually you want to have a growth economy.”