Parliamentary Budget Officer Yves Giroux says the federal government’s planned luxury tax will reduce sales of autos, boats and planes by more than $600-million a year.
The PBO released an updated assessment of the new tax Thursday, and Mr. Giroux later appeared as a witness before the House of Commons finance committee, which is studying the government’s latest budget legislation, C-19.
The 440-page budget bill would enact a new luxury tax on autos and aircraft retailing for $100,000 or more and new boats costing $250,000 or more.
MPs on the finance committee have heard widespread concerns about the tax from Canadian businesses with connections to the three sectors, either through manufacturing or related services such as marinas.
NDP finance critic Daniel Blaikie said his party supports a luxury tax but is open to amendments that could ease the impact on domestic manufacturing, particularly in the aerospace sector.
“We do hear the arguments about unintended consequences,” he said in an interview. “I think the industry would rather just not have the tax at all. But we’ve also heard from them that if it is going ahead, there are ways to do it that would have less of an impact on the production of aircraft in Canada, while still accomplishing the objectives of the tax.”
Thursday’s report follows a PBO estimate released last May. The updated report features a slightly revised estimate of new revenue that will be collected once the tax is fully implemented: $176-million in 2024-25, up from last year’s projection of $159-million.
The report also includes a new estimate of the expected drop in sales in each of three categories. In 2024-25, the tax will reduce aircraft sales by $31-million, auto sales by $123-million and boat sales by $473-million, for a combined sales reduction of about $628-million. That total is projected to increase each year.
The PBO report includes several caveats, including the fact that actual sales volumes for vehicles in those price categories are not known. The PBO also notes that it is challenging to predict how consumers may change their purchasing habits in response to the new tax.
Mr. Giroux told MPs that his review does not include an estimate of the full economic implications of the tax.
“Obviously, not every one of us buys a vessel or an aircraft. I certainly don’t. And I’m not in the market for such an expensive car,” he said. “But it’s certain that there would be a reduction in sales tax receipts. The extent to which this will happen is an estimate. And because it’s a niche market, it’s not straightforward to estimate.”
The government first announced its plans for the tax in the 2021 federal budget and promoted it in the party’s election platform later that year.
Finance Minister Chrystia Freeland has told MPs that officials in her department are looking into industry concerns.
Adrienne Vaupshas, a spokesperson for Ms. Freeland, defended the tax Thursday, saying in a statement that only a fraction of Canadians are buying private planes or yachts. ”It is only right and fair that the very wealthiest are asked to pay their fair share,” she said.
Brian Kingston, the president and chief executive of the Canadian Vehicle Manufacturers’ Association, said the PBO has likely underestimated the hit to sales that the tax will prompt and therefore is overestimating the amount of new tax revenue.
He also pointed out that cars costing more than $100,000 include zero-emission vehicles, so the new tax undermines the government’s own climate plans.
“If the government is serious about achieving its zero-emission vehicle adoption goals, you just simply can’t tax consumers who are considering making that purchase,” he said.
Another concern, he said, is that the thresholds will not be indexed to inflation, even as the buying power of $100,000 will diminish each year.
Earlier this week, the Canadian Manufacturers & Exporters association and other industry groups sent a joint letter to Prime Minister Justin Trudeau and Ms. Freeland, urging the government to reconsider the tax.
“We recognize that you and your colleagues are faced with many challenging fiscal pressures,” the business groups wrote. “However, the proposed Select Luxury Items Tax Act will penalize manufacturers, operators, distributors, pilots and suppliers, and negatively impact jobs. It will also cause significant repercussions within the supply chain, maintenance, repair and overhaul industries, and the entire aviation ecosystem at a time when they are just beginning to recover from the devastating effects of the COVID-19 pandemic.”
Conservative MPs said Thursday that the PBO’s numbers reinforce concerns about the bill.
“The report confirms that this tax is going to have a significant negative impact on industry, in particular boating,” said Tory MP Adam Chambers, adding that the PBO did not attempt to calculate the negative spinoff impacts in areas such as tourism. “This is not sound economic policy.”
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