A new federal tax on luxury vehicles, boats and planes will bring in more than $150-million a year, according to the Parliamentary Budget Officer Yves Giroux.
That estimate is slightly higher than what the Liberal government forecast in the 2021 budget.
Canada’s auto sector is strongly opposed to the government’s plan, noting that new vehicle sales were down by about 20 per cent last year because of the economic fallout of the COVID-19 pandemic.
“This is not the time for new taxes. We need to spur growth and recovery and the luxury tax will do the opposite of that,” said Huw Williams, a spokesperson for the Canadian Automobile Dealers Association.
Finance Minister Chrystia Freeland’s April budget unveiled the luxury tax, which follows up on a campaign promise that was included in the 2019 Liberal Party election platform.
The budget said it would raise $604-million over five years, or about $145-million a year as of 2024-25. Thursday’s report from the Office of the Parliamentary Budget Officer (PBO) estimates the tax haul at $663-million over five years. The PBO says yearly revenue from the tax will be $150-million in 2022-23 and will rise to $156-million by 2024-25.
Mr. Giroux said Thursday that the main challenge in estimating revenue from these new luxury taxes is accounting for what economists call behavioural responses. The PBO’s numbers attempt to estimate the degree to which consumers and sellers of these luxury items will change their approaches in light of these new taxes. Mr. Giroux said he hasn’t seen how the Finance Department accounted for this and that differing behavioural assumptions likely explain why the PBO’s revenue forecasts are slightly higher than the government’s.
The PBO estimates that vehicle sales will make up more than 70 per cent of the new luxury tax revenue, followed by boats and then aircraft.
Industry officials said Thursday that both the PBO and the Finance Department are likely underestimating the steps people will take to get around the tax.
“These things never raise the revenue expected,” said Mr. Williams, who also noted that British Columbia and Quebec already have similar taxes in place. “Our viewpoint would be, leave these luxury taxes to the provinces.”
Brian Kingston, president and chief executive officer of the Canadian Vehicle Manufacturers’ Association, said there can be a public misconception of what constitutes a luxury vehicle, noting that some pickup trucks cost more than $100,000.
“That’s not what most would consider to be a luxury item,” he said.
The two industry groups are urging the federal government to consider exempting electric vehicles from the new luxury tax, which takes effect on Jan. 1, 2022.
“If the government wants more Canadians driving EVs, the last thing that they should be doing is taxing them,” said Mr. Kingston, who added that EVs will continue to be more expensive than traditional vehicles in the short term until the price of battery packs comes down.
Ms. Freeland said in the budget that it is “fair to ask those who have prospered in this bleak year to do a little more to help those who have not.” The budget introduced a luxury tax on new cars and private aircraft worth more than $100,000 and pleasure boats worth more than $250,000.
“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!” Ms. Freeland wrote. “And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future prosperity.”
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