Federal budget bill’s luxury tax will hurt manufacturing and cost jobs, aerospace, boating sectors warn Liberals

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Canada’s aerospace and boating sectors are urging MPs to block or revise a planned new luxury tax included in C-19, the government’s budget bill, warning it will hurt manufacturers and trigger widespread job losses.

The budget bill implements a Liberal Party campaign promise to slap a new tax on new cars and aircraft retailing for $100,000 or more and new boats sold for $250,000 or more. It is scheduled to take effect on Sept. 1.

Called the Select Luxury Items Tax Act, the new legislation is part of the 440-page budget bill, which is being studied by the House of Commons finance committee. Parliament is likely to pass the bill before rising for summer in June, but it is possible it could be amended based on the feedback from policy experts.

In recent days, MPs on the committee have been getting an earful from business and labour groups who would be affected by the tax. They say the government’s plan to target the wealthy may sound good in principle, but in reality, it will hurt a wide range of businesses and their employees who are part of Canada’s aviation or recreational boating sectors in areas such as manufacturing, parts supply or tourism.

“We’re trying to wake up the population and make them understand that at the end of the day, it’s not really a luxury tax. You’re not taxing the rich. You’re hurting employment,” said David Chartrand, Canadian general vice-president of the International Association of Machinists and Aerospace Workers, in an interview Sunday.

Mr. Chartrand expressed his concerns to the committee on Thursday. He appeared with Mike Mueller, president and chief executive officer of the Aerospace Industries Association of Canada. Both Mr. Chartrand and Mr. Mueller told MPs they are united in their concerns about the luxury tax.

Mr. Mueller told MPs on Thursday that it “doesn’t make any sense” that the luxury tax for planes is at the same $100,000 level as for cars, while a higher $250,000 threshold applies to boats. He said if the tax goes ahead, some aviation firms and manufacturers may shift their operations to the United States, meaning Canada would lose out on a large number of well-paying direct and indirect jobs.

Mr. Mueller said aviation manufacturing employs Canadians in all parts of the country.

“This tax needs to be rethought, relooked at, because it’s going to do some real damage to the supply chain. It’s going to do damage to jobs. It’s going to do damage to revenue and it’s going to do damage, reputationally, internationally,” he said.

The committee also heard last week from Bruce Hayne, executive director of the Boating BC Association, who made a similar argument that there will be unintended consequences.

“This tax was meant to ask the wealthy to pay a little bit more. While that’s a terrific sound bite [and] on the face of it seems like a logical argument, what it does is actually hurts middle-class jobs,” he said. “It hurts jobs in manufacturing, in dealers and brokers. It hurts jobs in marinas where boats are stored, repair shops and the hospitality industry.”

Conservative MP Adam Chambers, who represents the Ontario riding of Simcoe North that he said is home to 25 marinas and 15 boat dealers, opposes the tax because of its impact on jobs.

“Unfortunately this is a political decision, not an economic one,” he said in an interview, noting that Finance officials confirmed that the department did not conduct an economic impact assessment of the luxury tax.

Mr. Chambers also said some Canadians who can’t afford a cottage will buy a boat instead.

Finance Minister Chrystia Freeland told MPs on the committee this month that she was aware of some of the concerns.

“I’ve asked my officials to review the situation,” she said on May 2 after Bloc Québécois MP Gabriel Ste-Marie said the entire aerospace industry is up in arms about the luxury tax. Still, Ms. Freeland defended the policy.

“I want to stress that we’re absolutely convinced of the importance of this tax,” she said. “Since it’s a new tax, it’s important to clarify all the details. That’s what we’re going to do.”

Ms. Freeland announced plans for the luxury tax in the 2021 budget and highlighted the move in her opening budget comments.

“If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat – congratulations! And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity,” she wrote.

Canada’s auto sector has also been speaking out against the tax since it was first proposed last year. A Parliamentary Budget Officer report said the tax will bring in more than $150-million a year.

When asked for a response to the industry’s latest concerns, Ms. Freeland’s spokesperson, Adrienne Vaupshas, provided a statement that defended the luxury tax. The statement did not include any pledge to amend the plan.

“This is not a new proposal. The government was re-elected on a platform that included a commitment to bring forward a luxury tax on yachts, private jets and luxury cars,” she said. “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 the very wealthiest pay their fair share of tax.”

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