Ouch. Bay Street needed a new order of Depends Tuesday as stocks swooned along with oil. The dollar, too. Barely hanging on to 74 cents now, little more than a month after it was headed for 77.
So, wassup? Is this happening just because US frackers are turning on the taps and American interest rates will be sliding higher on Wednesday?
Partly, yes. But there’s more. It has to do with next week. Less than a year and a half after T2 was elected to a majority, the kimono opens and we view what our overlords are packing. The market’s bracing for a serious tax-and-spend, classic liberal budget on March 22nd that will punish people silly enough to be successful and have money.
So far, we know this. The country has fallen back into serous deficits and roughly $100 million will be added to the nation’s debt by the end of the first (and maybe only) Trudeau mandate. Thus, the budget did not balance itself. Not even close. We also know tax revenues have been increased, thanks to the new 29% eat-the-rich bracket contained in the last budget. But that’s not enough to offset spending, which will be $29 billion more than revenues this year. Oops.
This has led to a rough spot for the feds. The teeming middle class and all those lefty moisters are expecting more dough from government – because that’s what they were promised. But with a 54% tax load already imposed on the incomes of the lonely 286,000 high-income Canadians, the Libs are running out of blood. Plus, if they plan on being real dicks, then this is the time to do it – two full years before the next election.
Up goes the capital gains tax inclusion rate, from 50% to (I’m hearin’) 75%. For the average guy owning a bunch of mutual funds, that will increase the tax load by 49%. Ditto for your investment real estate, or that condo you bought on spec. Of course, this is still a lower tax rate than is collected on interest from GICs or rental income, but it’s a shocking hike.
By the way, it was Justin’s dad, who invented capital gains taxes back in 1972. Before that you could keep the money your after-tax money had earned. But no more. The inclusion rate (the amount of a capital gain you must include in your taxable income) was raised to 1990 by Brian Mulroney as part of the strategy to corral the deficit, then cut back to 50% by Stephen Harper.
Also up for diddling: the treatment of stock options, famously used now to attract bright young minds into emerging companies and start-ups. Also the dividend tax credit, which recognizes investors are receiving money from corporations that have already paid their share of tax. The Libs may be ready to say phooey to that.
Then there’s the expected Doctor Tax, targeting small corporations in which family members are shareholders or receive compensation. Retained earnings might also come in for special tax treatment, since (you know) only super-rich people like tile layers and self-employed IT consultants operate through incorporations instead of collecting salaries.
Now, even houses may not be beyond the grasp of TPTB. You will recall last October this paranoid but muscular blog raised an eyebrow when the feds made it mandatory to tell the CRA when you sell your home. Ostensibly this was to prevent foreign dudes from flipping properties and avoiding capital gains tax (which is a total non-event), while the real purpose is to establish a residential real estate register for future revenue purposes.
Gluskin Sheff smart guy David Rosenberg is now speculating this could be leading to a trial balloon on the taxation of capital gains. Imagine. Making $1 million in profit on your slanty semi, and then having to pay tax on that! “This promises to be a tax-grab budget that would have made the likes of Herb Gray very proud if he was still alive,” says Rosey.
But if taxing windfall, undeserved and socially-destructive real estate gains ain’t on, then you should expect the CRA to be hunting down the self-employed who have been claiming home-related expenses (a portion of mortgage interest, heat, insurance etc.). This will used to reduce the tax-free profits they may be expecting when the property sells.
In short, we elected guys who promised stuff that they made up. Now they can’t pay for it.
Care for a fresh Depend?