I am a retired entrepreneur, a business founder and operator and now investor. I have been a lifelong Liberal. Since my means have permitted, I have donated to the party every year (as has my wife) and supported my local candidate both by canvassing and by donations in every election.
I have long accepted the view that the NDP is about slicing the pie, the Conservatives are only about growing it and the Liberals accept both responsibilities.
The Liberals for the most part aligned with my belief system: harness individual initiative and drive in a market system to build a better country and divide the ever-growing pie for as much equality of opportunity as possible. And do so in a way that is sustainable for future generations.
This budget is more NDP than my sense of Liberal. The increased tax on capital gains will damage our economy in a most un-Liberal way. It will discourage investment at a time when we need to be encouraging it. Investment is what makes the pie bigger. Investment supports businesses that are trying to grow. Investment is what turns innovation into business, employment, tax revenues and yes, a bigger pie.
Investment is an engine of productivity and Canadian productivity has been dropping. On a per capita basis our pie has been actually shrinking. This is not sustainable and in a competitive global economy it will have dire consequences.
This budget will not help. It will hasten the day when our social safety net and the level playing field measures we cherish become unsustainable.
It happens naturally and it happens predictably. Today I know business owners who are considering taking more reward now rather than postpone reward and reinvest. This budget is the cause. Incentive to invest has been substantially diminished. How can this be good for the country?
It can’t.
Successful people are mobile. I am aware of some who have left the country already. This will increase the flow. Their investments will go elsewhere.
As others have pointed out, the change will do nothing for the doctor shortage.
As loyal a Liberal as I have been, this budget gives me pause.
As a Liberal, I believe in progressive taxation: I have benefited in greater proportion from the education system which trained my employees, from the roads, hospitals and amenities, the courts and enforcement of contracts, and many other things taxes pay for, all of which created an environment where it was possible to build a business. I don’t resent my taxes. I want a fair country where everyone has a chance.
This government got the country through the Trump presidency, a genuine threat to our markets. It has been resolute in the support of Ukraine, a critical moment for Western democracy. Our performance during the pandemic stacked up very well internationally, and the debt burden it left us also stands up to comparison with our peers. They have shown considerable courage. Holding firm on the carbon tax alone, given the opposition’s success in painting it as the cause of all our economic ills, is evidence of real backbone.
As a Liberal, I think $10 a day childcare will put money in the pockets of countless families, which they will put directly into the economy, free up more women to enter the work force, increase the domestic birthrate and reduce our dependence on immigration. Good policy.
I think dental care will help eliminate one of the few visible class markers (bad teeth) that hold people back. Good policy.
I think a carbon tax, provided rebates keep lower income Canadians whole, is the least burdensome and most market-oriented way to do our part to reduce the future impacts of climate change. Good policy.
This is the kind of dividing the pie I support. But it appears my party has forgotten how to bake it in the first place.
They can make the argument that they are investing in future jobs, attracting EV and battery plants. These may well be good initiatives, as expensive as they are. But they are global companies. The profits, and the really interesting strategic decision-making jobs in these companies, will largely not be in Canada They are branch plants: our best and brightest seeking challenging careers in these companies will need to join our brain drain.
The government has also fallen into the trap of increasing the overhead burden on the economy, as exemplified by the extensive use of consultants and growth of the public sector. And the burden of more taxes.
Growing the pie depends entirely on increasing productivity. Canadian productivity has been dropping. Productivity is not about working harder: it is about working better with innovations that require capital investment.
In my business I used to say, partially in jest, that there were two kinds of employees: fur-bearing animals (ignore their ultimate fate, it’s an imperfect analogy!), and burden. The objective was to keep the first group (those who sell and deliver products and services to customers) growing, and well-rewarded, relative to the second (those who administer: overhead).
Both groups are necessary, but managing the ratio is critical to productivity.
It’s also the fur-bearing group that is most likely to come up with better ways of producing goods and delivering services: the innovations that increase employee productivity. The administrators measure these improvements and help to prioritize the most productive investments, but they are unlikely to initiate them. Constantly tracking and improving this ratio is a basic key performance indicator for business success.
Of course, governments are not businesses: they can’t pick and choose the customers they want to serve, they need to serve everyone. Still, they have fur-bearing animals: doctors and nurses, for example, who deliver services to citizens; and burden: bureaucracy. And that burden is paid for by taxes, which makes it burden to the whole economy.
Our ballooning public service means the ratio of burden to fur-bearing in the Canadian economy is going in the wrong direction. We cannot compete in a global economy without turning this around.
Why has this happened? I think we have to look no further than our elected government. Our members of parliament are overwhelmingly from the burden sector. They are largely professional politicians and lawyers. Even many of those with business experience come from the consulting sector or served as legal counsel for the private sector firms that employed them.
This is not to say they are not capable and competent people who have a sincere desire to serve and make their country a better place. It is not to say we don’t need them or want them in our government.
But prosperity to fund social services comes from the fur-bearing sector. It comes from private enterprise innovating to be competitive. This is not about home runs. It’s great when we get a Blackberry or a Shopify, but the customers of these companies are not themselves such unicorns: they are the base hits and doubles or triples that keep the economy growing and productive. My business was one of these. When I started it, it had one employee. Me. When I sold it, it employed some 200 people.
The people who start such companies take risks. They are often able people who leave safe employment because they believe they have a better idea of how to serve the wants and needs of customers. In the first years of their efforts, they work untold hours. The image of the entrepreneur lying awake at night wondering how on earth they can meet the next payroll is not a myth. I, and many others, lived it for years. Calling around the family for loans from their credit cards to buy a week to deal with cash flow problems is a memory seared in my brain. It was a revelation: as the son of a teacher, whose income was always secure, I was as unaware of the precarious nature of the business founder’s life as I think many of our elected representatives are.
Was it worth it? It is enormously satisfying to have your belief, often viewed with skepticism by your friends, at last validated by enough customers for your business to prosper. And the tax system favoured your sacrifices: it rewarded not paying yourself, but instead investing in growth, by taxing the proceeds of the eventual sale of your business much more favourably than if you had taken the money out along the way for a bigger home or some other asset that is not productive in the economy.
This tax change completely changes the calculus for business owners. And a larger lifetime capital gains tax exemption far from offsets it. It is anti-success and anti-investment.
Who from the entrepreneurial sector was consulted on this tax change, and what was their input?
One lesson you learn quickly as a business operator is that if there is a conflict between the compensation plan for employees and the goals of the business, the compensation plan incentives will win out. Aligning employee compensation and incentives with the activities that drive productivity is critical to success.
The tax system is essentially the national compensation plan: it needs to align with and encourage the behaviours that will grow the pie. The government’s carbon tax defence is based on the fact that if you reward certain behaviours, you will get more of them. Yet somehow it has decided to reduce the rewards for risk-taking behaviour, which will mean we get less of it. More business owners and operators will withdraw funds for consumption, leaving less to grow their businesses. Those who have sold businesses will do less “angel” investing and choose safer vehicles for their retirement funds. This new capital gains tax policy is what is wrong with this budget. It is the sort of tax policy you would expect from the NDP. It ignores historical Liberal sensibilities.
Canadian productivity has fallen and this tax change puts a heavy foot on its chest.
Former business owners like me do not have company pension plans. The proceeds of the business sale (after paying off some of the debts we have accumulated to invest in the business) often go into a holding company, where they are invested for two purposes: first, to generate funds to retire on; and second, to leverage our experience and resources to support the fledgling businesses that will hit the singles, doubles and triples of the future, build the Canada of the future, by risk investing.
This is one of the things the government needs to encourage to increase productivity: the mentorship and investment of those who have shown they can help to grow the pie by building businesses that could compete against international alternatives. Such businesses need to innovate and to operate efficiently (productively), to compete. (Full disclosure, I sold my business to an American multinational who wanted a greater presence in what was by then a declining market. My risk investments are in Canada, in markets that are expanding.)
The latest tax changes to the treatment of capital gains, particularly those made inside investing companies, are wrong-headed. Not only will they discourage risk-taking (and they certainly will): they will also significantly reduce the capital available for it. The increased tax burden on the funds invested to retire on will mean there will be less available to invest in early-stage businesses (the angel investing key to the startup ecosystem): more will have to stay in secure established companies. We already do not have enough risk capital in Canada. This makes it worse.
The lack of understanding of how the pie is baked that is evidenced by this budget measure comes on the heels of a series of things which have shaken my long-established faith in the Liberal party.
Idealistic visions need seriously pragmatic and competent execution. Businesses often oscillate between visionary leaders who build them and competent managers who run them effectively. Rarely do they come in the same person (Steve Jobs was one exception). Countries do the same. When Jean Chretien was Prime Minister, we had Paul Martin. Stephen Harper was no idealist, but he was competent.
I like Justin Trudeau’s ideals. But in the wake of ArriveCan, the bare trusts debacle, the ballooning of the public sector, what appears to be a very suspect procurement system, the neglect of defence, the sudden discovery that temporary workers and foreign students mean our immigration numbers are far more than we understood and the consequent impact on housing affordability, all of which seemed to come as a surprise, the loss of confidence in national institutions like the RCMP, and now the new tax measure in the budget…this is a far from complete list of the things that make me question the basic management competence of our current government.
This is a significant concern about a government that takes its members largely from the administrative cadres of our society. We appear to have a growing number of administrators in our bureaucracy with at the same time a deterioration in administration quality. Too many not very good administrators. Burden upon burden.
The fear that we are burdening future generations with current operating costs is a genuine one. But the best way to increase tax revenue is to grow the economy. Burdening it with more taxes on investment is not the way to do that.
I can’t help but think that along with the lawyers and technocrats and idealists, we need some people in our government who have had to meet a payroll. Some people in other words who know the economy doesn’t look after itself: it is built with dreams, personal risks and risk capital, and relentless drive to execute on vision.
On its own, this tax change is a mistake. But what it says about the government’s understanding of the economy is far more worrying.
I read recently that Chrystia Freeland, our Minister of Finance, is an admirer of Lawrence Summers, who said that the priority for the economy should be better sharing rather than growth. I think he is right in that: today in the United States, an economy that is thriving, and where inequality threatens the social contract.
But it is time to pause further slicing up the pie and focus on baking a bigger one today in Canada. As Mark Carney recently put it, you can’t distribute what you don’t have.
We likely have more than a year of Liberal NDP government. I am no longer a given as a staunch Liberal supporter. I will be watching behaviour and leadership between now and the next election for guidance as to what to do.
