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Documents show Trudeau warned of issued linked to ‘build back better’ pledge

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OTTAWA — Newly released documents show Prime Minister Justin Trudeau was given warnings about the complexity of plans to “build back better” from the pandemic that could lead to economic uncertainty.

The idea of strengthening economic shortfalls unearthed by the pandemic has become a rallying cry for Canada and many of its allies, such as the United States.

While there is a heavy focus on strengthening battered supply chains and building domestic capacity to produce essential goods, “build back better” also aims to address digital and green economic shifts accelerated by the pandemic.

The prime minister’s briefing binder notes that governments looking to “build back better” could create “uncertainty about rule and standards, create market distortions, and generate less of an even playing field.”

The document also highlights the combined effect of higher government debt loads, inflation and rising interest rates that could hinder “build back better” efforts.

The documents were released to The Canadian Press under the Access to Information Act, just ahead of Friday’s closure of consultations on this year’s federal budget.

Finance Minister Chrystia Freeland is being asked to spend on all manner of requests laid out in some 500 submissions to the House of Commons finance committee, that show at least over $300 billion in specific asks.

Billions more are hinted at in submissions that ask for significant, though not specific, funding for various initiatives.

Several submissions ask the government to rein in the deficit, which the Finance Department projects to be $58.4 billion for the fiscal year that starts in April before any new spending promise in the budget.

There are also requests to cut billions in spending on things like a national child care system, or increase corporate tax rates to boost revenues and to deal with a debt forecasted to hit $1.2 trillion this fiscal year.

Trudeau was told higher debt levels will generally constrain governments’ ability in “addressing social priorities and responding to future crises.”

The Business Council of Canada, which represents the country’s largest employers, is among the groups urging caution on spending plans, saying anything that doesn’t help with long-term growth could hurt Canadians by fuelling already high inflation.

When it comes to “build back better,” the council suggested working in even closer lockstep with the United States to prevent protectionist policies that have percolated with greater intensity after protesters blockaded key border crossings.

The economy, by most metrics, is also running at capacity. Too much spending in the near-term could add fuel to headline inflation rates that are at three-decade highs.

“Fiscal actions — real or perceived — that stoke inflationary pressures could make matters worse,” said Rebekah Young, Scotiabank’s director of fiscal and provincial economics.

“Lower income households tend to feel the effects more so than higher income households, so caution is warranted in cloaking further stimulus measures in ‘affordability’ terms.”

When Trudeau received his briefing binder from the Privy Council Office, the Bank of Canada was expected to start raising its trendsetting interest rate this year to combat inflation rates that had steadily risen.

“The potential for higher inflation and interest rates would also be unfavourable to large-scale investments, perhaps especially in the type of projects envisioned in a green energy transition,” officials wrote in the document.

A plan to prod large-scale investments and long-term growth is not easy to craft because of how comprehensive and reliant it must be on businesses and allies like the United States, said Robert Asselin, the Business Council of Canada’s senior vice-president of policy.

He said the government needs to consider more long-term spending ideas, lest it focus too much on the near-term and fuel inflationary pressures.

“It could put the electorate in a place where this government would not be seen as being responsive, either on inflation or on growth coming out of the pandemic, which I think would put this government in a very difficult situation,” said Asselin, Trudeau’s former budget chief.

Young said there are other actions the government could take in the budget that don’t require new spending, such as tax and regulatory reforms that sprinkle the pre-budget submissions to the Commons finance committee.

A broad spending review, also asked for by several groups, could better prioritize public funds and prod business investment needed to meet the government’s goals to build back better, Young said.

“It is now up to policy-makers to foster a credible and growth-friendly policy landscape ahead,” she said, adding there is no shortage of uncertainty at present and government actions shouldn’t be part of that.

This report by The Canadian Press was first published Feb. 25, 2022.

— With files from Jim Bronskill

Jordan Press, The Canadian Press

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Economy

Luxury goods tax on super-rich could hit electric vehicles: expert

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By Marie Woolf in Ottawa

A new tax on yachts, luxury cars and private aircraft designed to hit the super-rich could also cover vehicles meant to help the environment, a tax expert warns.

The luxury goods tax, which will come into force on Sept. 1, will cover cars and SUVs, as well as private planes and helicopters, worth more than $100,000.

The federal tax will also cover yachts and boats — including motorboats — worth more than $250,000.

But senior tax lawyer Héléna Gagné says the new tax could also hit some electric and hybrid vehicles, including Tesla and BMW models, which cost more than $100,000.

The federal government has been encouraging Canadians to invest in clean technology and zero-emission vehicles, which can carry a higher price tag than cars that run on fossil fuels.

Gagné said the thresholds for the tax could also affect people who would not be regarded as wealthy, but have saved up to buy a private plane for a hobby.

“It seems to be assumed that it is only the wealthiest who will be impacted by the luxury tax but it is not necessarily the case,” said Gagné, a partner at Osler, Hoskin & Harcourt LLP. “It can also impact indirectly taxpayers who may not consider themselves as being among the wealthiest but who may decide to purchase an electric vehicle with a retail sales price that happens to be over the $100,000 threshold.”

Adrienne Vaupshas, a spokeswoman for Finance Minister Chrystia Freeland, said the measures, originally proposed in the 2021 budget, are not designed to hit the middle class.

She said the threshold for the tax for boats was deliberately set at $250,000 so it would cover superyachts and not middle-class families buying boats.

Vaupshas said it was “only right and fair that the very wealthiest are asked to pay their fair share.”

“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 and implementing this measure is a priority,” she said.

The tax was originally proposed in the 2021 budget. It will cover luxury cars, planes, and boats bought for personal use and leisure. Commercial vehicles, including small planes selling seats, and emergency vehicles are among the classes of vehicle exempt from the new tax.

The tax amounts to either 10 per cent of the taxable amount of the item or 20 per cent of the amount over the price threshold — whichever is less.

The NDP has been putting pressure on the federal government to do more to tax the super-rich. Measures to increase taxes on the wealthiest people in Canada, however, were not included in the Liberal-NDP confidence and supply pact.

NDP critic for tax fairness and inequality, Niki Ashton, said at a news conference last month that she wants the federal government to close loopholes she says are being used by the super-rich and corporations to avoid paying billions in taxes.

This report by The Canadian Press was first published Aug. 11, 2022.

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Economy

Plastics producers ask court to quash planned federal ban on single-use straws, cups

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OTTAWA — More than two dozen plastic makers are asking the Federal Court to put an end to Ottawa’s plan to ban several single-use plastic items including straws, cutlery and takeout containers.

It is the second lawsuit filed in the court by a coalition of plastics makers calling themselves the Responsible Plastic Use Coalition.

The first suit filed in 2021 seeks to overturn the government’s decision to designate plastics as “toxic” under the Canadian Environmental Protection Act.

Environment Minister Steven Guilbeault used that designation to publish regulations that will ban the sale, import and production of six plastic items.

The second lawsuit filed in mid-July asks the Federal Court to quash the ban, prohibit the government from using the act to regulate single-use plastics and prevent the ban from being implemented in the meantime.

Guilbeault says he is confident the government’s regulations will be upheld and would rather work with the industry to improve recycling than battle the sector in court.

This report by The Canadian Press was first published Aug. 10, 2022.

The Canadian Press

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