The federal government’s plan to slap a special luxury sales tax on high-priced cars, boats and planes could hurt Bombardier Inc. sales and trigger unintended consequences for domestic employment at a number of manufacturers, says the aircraft maker’s chief executive officer.
“I understand fundamentally what they’re trying to achieve and I’m not going to say that I agree or disagree with that,” Eric Martel told reporters Thursday on a media call to discuss the company’s latest financial results. “[But] they need to evaluate … the downside. Because it’s clearly not just upside.”
Mr. Martel said 5 per cent of Bombardier’s US$6-billion in annual sales come from Canadian customers. Four or five deals that Bombardier could have finalized in recent weeks with Canadian clients are in limbo as the they wait to see whether they’ll have to pay the tax to buy the jet, he said.
The way the Trudeau government is approaching this issue will have an impact on employment and not just for Bombardier, Mr. Martel said. “If we manufacture 5 per cent less airplanes because people don’t want to pay that tax, then there will clearly be a link at some point,” he said.
The Liberals proposed the tax in the 2021 budget as a way to raise more revenue from wealthy Canadian residents, along with previous hikes in the top income brackets. The levy, of either 10 per cent or 20 per cent, depending on the value of the purchase, applies on cars and aircraft worth more than $100,000 and boats priced at more than $250,000.
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The Liberals have argued the luxury tax is needed to help pay for COVID-19 programs, but businesses and industry groups have warned it will have a net negative effect on the economy because it will lead to lost revenue and layoffs. They’ve asked Ottawa to abandon plans for the tax or to limit its effects, for example, by raising the threshold for aircraft to $5-million.
There are several manufacturers with operations in Canada that build high-priced boats and planes, including Neptunus Yachts in St. Catharines, Ont., and Diamond Aircraft Industries in London, Ont. Bombardier makes private jets ranging in price from about US$26-million to US$75-million.
The country’s auto manufacturers largely build products that sell for less than $100,000, but a luxury tax could still hit the industry. The Canadian Vehicle Manufacturers’ Association has told the government a levy could hamper the widespread adoption of electric vehicles because they tend to have higher price tags, said the group’s president, Brian Kingston.
In recent days, one union has also spoken out against the levy. In a Feb. 4 letter to Finance Minister Chrystia Freeland and Industry Minister François-Philippe Champagne, Unifor leaders Jerry Dias and Renaud Gagné said the pandemic has pummelled the aerospace industry and triggered significant layoffs for their members. They said the proposed tax might just make things worse.
The labour leaders said there are other ways to tax the wealthy that would bring in far more revenue, including implementing a 1-per-cent tax on household assets over $20-million. They say if the government moves forward with the luxury tax, it should exempt Canadian-made aircraft.
The government projects the tax will raise about $150-million a year. Critics of the measure say the real number will likely be much less.
Rick Layzell, chief executive officer of the Boating Ontario Association, said that in many cases Canadian customers will just buy and dock their boats in the United States to avoid the tax. He said he has heard from dealerships in Vancouver that customers are looking to keep boats in Seattle or California instead, and that Ontario customers are eyeing Florida.
“A boat is a discretionary purchase,” Mr. Layzell said. “A consumer that can afford a boat of this calibre – north of a quarter million bucks – their commitment has been quite clear: they’re just going to buy the boat in the States.”
He said the lost sales will translate into less revenue for the boating industry and then lost jobs.
“The immediate impact is on the sales showroom floor,” Mr. Layzell said. “That then trickles into the middle-class jobs that are the service technicians, the boat detailers, the cleaners, the boat haulers … and then the next step is the marinas.”
The NDP said the Liberal government should enact its luxury tax, while also finding a way to support the aerospace industry so that no jobs are lost. The Conservative Party did not offer a comment.
Adrienne Vaupshas, a spokesperson for Ms. Freeland, said the Liberals were re-elected last year on a platform that included a commitment to impose the luxury tax. She said the measure is a priority for the government and draft legislation will be released soon.
“To ensure we have the resources needed to invest in Canadians and to help our economy recover from the COVID-19 pandemic, we are ensuring everyone pays their fair share of tax,” Ms. Vaupshas said.
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