What if there’s a new tax that hurts Canada’s economy? That’s the luxury tax

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Mike Mueller is president and CEO of the Aerospace Industries Association of Canada. David Chartrand is the Canadian general vice-president of the International Association of Machinists and Aerospace Workers.

What if the government instituted a tax that damaged Canada’s economy? What if, because of the tax, fewer aircraft will be built in Canada, meaning fewer employment opportunities from coast to coast? What if this tax hurt Canada’s international reputation for economic predictability and fair treatment?

This is essentially what’s occurring now in Canada, recognized for its world-leading aerospace industry and as one of the only countries capable of manufacturing and assembling an aircraft from nose to tail. It is perplexing why the Canadian government, when given the choice, would rather undermine a key national industry instead of fostering it through sound policies.

In 2022, a federal law was enacted that imposed an additional levy on the sale of certain vehicles, including aircraft with a value of more than $100,000. The government describes it as a luxury tax on Canada’s wealthiest individuals, but it’s really a tax on manufacturing and productivity, and something that should be repealed to protect Canada’s aviation industry.

The results so far? Well, there are no current figures on hand, but before enacting the tax, the Finance Department admitted that it could result in the loss of between 400 and 870 homegrown jobs. A report by Dr. Jacques Roy from HEC Montréal and commissioned by the Aerospace Industries Association of Canada suggested this is a gross underestimate, and that 3,800 jobs in the Canadian aerospace industry could be lost just in the first two years after the tax’s enactment.

These are stable, unionized jobs that bring stability to communities as well as regional economies. Canada’s largest union in the sector, the International Association of Machinists and Aerospace Workers, has also criticized the tax, stressing the significance of aerospace in regional economies. It is rare that such an obscure tax has a broad-ranging adverse impact on an entire ecosystem.

Luxury tax on aircraft to reduce tax revenue by $29.9-million, cost more than 2,000 direct jobs, report warns

To make matters worse, even government coffers aren’t benefiting. Current information suggests that Ottawa has collected minimal revenue to date, as Canadian business aircraft purchasers are cancelling their orders of locally built planes.

Federal policy should be carefully applied with a steady hand, but the government has instead painted with a broad brush when it comes to the Select Luxury Items Tax. The details of the tax are causing even more confusion, especially among Canadian corporate business jet owners who often rent out their planes when not using them.

There is an exemption for buyers who use their aircraft 90 per cent or more for business purposes. However, this threshold is much higher compared with other tax situations, such as income tax or the goods and services tax, for which the business purpose threshold is typically 50 per cent or more.

Given the severity of the situation, it’s reasonable to ask why this tax even exists. Why would Ottawa go out of its way to negatively affect an industry of utmost importance to Canada, and one with a proud history of global achievement? Who stands to benefit from this newly implemented tax that isn’t achieving its intended outcomes? A similar luxury tax was imposed in 1991 in the United States. The early effects were comparable to what’s happening now in Canada, before Washington inevitably eliminated that tax in 1993.

When asked, the majority of Canadians disagree with the position taken by the government with this tax. Polling from Nanos Research, commissioned by AIAC, found that 56 per cent of Canadians oppose taxes that specifically target the aerospace industry. In addition, 75 per cent of Canadians say it is a bad time to implement new taxes on companies that manufacture products in Canada and 88 per cent think the federal government should be encouraging jobs in the aerospace industry.

The damage already being done, with the potential to completely cripple Canadian aerospace, explains why we stand together – an industry organization and a union representing industry workers – to say that this tax is counterproductive for Canada and ill-drafted. It’s wrong for Canadian workers, Canadian communities and Canadian industry. Canada’s aviation industry has a proud history of innovation and competitiveness. To protect this legacy, the government should do the right thing and reconsider the consequences of this tax.