Liberals break promise to plug tax loophole for the rich

The loophole involves executives taking remuneration in stock options rather than cash. If the price of the stock is lower than the market the difference is taken as remuneration. An executive can claim a 50 percent tax deduction. when selling the stock.

The decision to not plug the loophole was made after pressure on Finance Minister Bill Morneau by bigwigs from the financial elite. Liberal campaign literature from the 1915 election proposed that as many as 8,000 people were claiming an average of $400,000 a year through the loophole. In the campaign the party platform called the loophole a disproportionate benefit for the wealthy and promised to cap the benefit at $50,000.

One of those who contacted the new Liberal government was John Manley himself a former Liberal finance minister who now heads the Business Council of Canada. In November of 2015 Manley wrote: “Doubling the tax rate with a retroactive impact on existing options would be unfair. Allow for a gradual phase-in of the changes.” Just a few weeks later Morneau announced that the changes would not be retroactive.

However, last March Morneau went even further and said that closing the loophole was completely off the table. The concern about wealthy executives profiting from the loophole is now replaced by concern that "small firms and innovators" will find their businesses hurt by blocking the loophole. When asked why Morneau never mentioned messages from larger firms and others, he replies that the Liberals are concerned to strengthen the middle class through broad consultation and notes that the department gets a large range of correspondence.

NDP finance critic Guy Caron noted: “There are many problems. I think that shows the influence Bay Street has over the Liberal Party. That’s something we knew in the past and it’s still very much like this nowadays. I think this is a perfect example of this.” The move shows a cynical attitude on the part of the government according to Caron.

Dennis Howlett, president of Canadians for Tax Fairness, noted: “The prime minister campaigned on a promise to get rid of the stock option loophole which has put billions back into the pockets of wealthy CEOs, including bank presidents, real estate moguls, and heads of powerful multinationals. Those guys send their lobbyists to talk to the Finance Minister and — just like that — their commitment disappeared.” The group also criticized the Liberal government for having private dinners with Liberal cabinet ministers and even Prime Minister Trudeau for a high fee. A ticket can cost over $1500. At first Trudeau denied that there was any lobbying at these cash-for-access events. Just before Christmas, Trudeau admitted that lobbying did take place but did not affect his decisions.

By the end of October this year, 16 fundraisers were reportedly held by Trudeau. But he had reportedly held 16 such fundraisers by the end of October. The Tyee has reported on two dinners in private homes — one in Toronto, one in Vancouver — attended by a combined 120 people. Some might have not been paying guests, but if 90 per cent were, the haul from those two nights would be about $165,000. Trudeau’s cash-for-access events to the end of October could easily have pulled in $1.3 million. Cabinet ministers and officials had held more than 70 similar fundraisers by the end of October. t=_blank]The Tyee reported on two dinners, one in Toronto and the other in Vancouver attended by about 120 people in all. Even if only 90 percent were paying guests the take from the two nights would be around $165,000. For all 16 the take could be up to $1.3 million. During the same period cabinet ministers and government officials held more than 70 similar fundraising dinners.

The tax loophole deprives Canada of about $750 million in lost revenue each year. It is now the little guys and struggling startups that are going to be hurt by the change even though most of the benefits go to executives who are already doing well. Canada's top CEOs earn 193 times what the average worker earns. They earn so much that they benefit greatly by taking much of their compensation as stock options which are taxed at half the rate of regular salaries. Yet Morneau justifies his refusal to act by saying: "I heard from many small firms and innovators that they use stock options as a legitimate form of compensation, so we decided not to put that in our budget." The Liberals and Conservatives agree on promoting policies that make the rich richer while the burden of taxes is placed squarely on less wealthy taxpayers. Some industry representatives suggested different ways of closing the loopholed that would have a less drastic effect on the wealthy. The Liberal government decided that they simply would not bother even to try to close the loophole at all. Maybe Stephen Harper the former Conservative Prime Minister suggested that idea to Morneau.

Provinces and federal Liberal government fail to agree on health-care funding

The federal government and the provinces have failed to reach an agreement on health-care funding. The Liberal government had offered $11.5 billion to increase targeted spending on home care and mental health.

The Finance Minister Bill Morneau said on Monday, December 19, that the government has now taken the offer off the table. The Canada Health Transfer (CHT) will go back to only a three percent increase on April 1, 2017. Morneau had offered to increase the transfer to 3.5 percent over five years but the provinces rejected this. Morneau complained: "We came to the provinces with a significant offer of funds ... We're disappointed we weren't successful." Morneau ended the meeting early Monday. Federal health minister Jane Philpott said: "This was an historic offer. I think there is widespread agreement that the systems themselves need some transformation, and we're going to continue to look for ways to do that."

The provinces were angry that the federal government came with a take it or leave it attitude. Ontario Finance Minister Charles Sousa noted: "There was an urgency to close the meeting off. We're here, we desire an agreement, we need to come to a conclusion. Why have anybody attend if there's nothing to negotiate or discuss?" Sousa complained that the Liberal government in Ottawa was not willing to hear evidence that the federal funding plan would imperil the health-care system. Prince Edward Island premier Wade MacLauchlan said that Morneau refused to discuss a counter-offer of 5.2 percent per year.

The provinces will leave with an increase only half of that which they had under the Conservatives of six percent, a rate that started under the Liberal government of Paul Martin in 2004. However, former Conservative finance minister Jim Flaherty had unilaterally changed the rate to three per cent or if the nominal GDP increase is greater than that to the rate of nominal GDP growth. The change takes effect in 2017. As it is now, the Liberals have simply accepted the Conservative reduction.

The premiers have been united in arguing that the rate is not high enough to keep up with the rapid increase in the numbers of older Canadians. MacLauchlan pointed out that the provinces have been asking for a first minister's meeting on health-care spending with Prime Minister Trudeau but this has been repeatedly rebuffed. He said that the provincial ministers would like to hold such a meeting early in the new year. Trudeau claimed that his government would engage in collaborative federalism.

The Quebec Health Minister Gaetan Barrette threatened to walk out of the meeting if the federal government did not put more money on the table. He said: "This is not a negotiation process; this is an ultimatum. We cannot resolve that over a one-day period... and we will walk away if the proposal doesn't change." The ministers from the provinces and territories were infuriated by what was in effect a federal ultimatum with no negotiation and much less money on the table than the provinces wanted. Many provincial premiers wanted to see a transfer of 5.2 percent per year. Ontario had proposed a ten-year funding plan that would have the federal government increase transfers to the provinces by 5.2 percent each year. Ontario Premier Kathleen Wynne said the plan was a starting point for discussion. In exchange for the increase transfer provinces would agree to spend the money on priorities they agreed to with the federal government such as mental health and home-care services.

Canadian premiers have complained that federal funding as a percentage of provincial health care spending has decreased from 50 cents on the dollar when the public funding began to 16 cents on the dollar now. The federal government claims this is wrong since the numbers the provinces are using ignore tax transfers and that federal funding was never 50 percent of provincial health care costs.

Liberal government tables new bill that could reduce pension benefits

The Liberal government's Minister of Finance, Bill Morneau, tabled a bill this week that would allow Crown corporations and federal private-sector employers to back out of defined-benefit entitlements they agree to.

	1 of 2
For those retired and working employees who could be impacted by the change, their retirement benefits could be drastically reduced even though they have paid into the plans for years and budgeted on the basis of what they expected to receive when they retire. Defined Benefit plans require employees to give employees a monthly payment regardless of their investment returns. Accrued benefits are legally protected and cannot be clawed back. While such plans are not as cheap as alternatives such as Defined Contribution plans, they offer workers greater retirement security.

The president of the Canadian Labour Congress(CLC), Hassan Yussuf, said that the bill, C-27 was an "unconscionable betrayal" and an "attack on future and current retirees.' The text of the bill can be found here. The bill has the innocent title: " Act to amend the Pension Benefits Standards Act 1985". It removes the legal oblgation of employers to protect already accrued benefits. As the CLC put it: "Bill C-27 removes employers’ legal requirements to fund plan benefits, which means that benefits could be reduced going forward or even retroactively. Even people already retired could find their existing benefits affected, after paying in their entire working lives."

In a letter to Morneau, Yussuff said: "C-27 was introduced without notice or consultation with Canadians, pensioners, or unions and proposes measures that directly contradict election promises to improve retirement security for Canadians. If enacted, it will have negative implications for private and public-sector DB plans in every jurisdiction in Canada." Yussuff noted that the Liberal platform spoke of guaranteeing retirement security whereas the bill does the exact opposite. The platform promises to boost the Canada Pension Plan.

Ironically, the former Harper Conservative government in April 2014 had tried to loosen rules around public sector pension plans and encourage the growth of Targeted Benefit plans. There was such strong opposition that the Conservatives dropped the plan. In 2015 they floated changing pension plans again. Now it seems it is the Liberals who are carrying on Harper policies. Opposition to such policies is what resulted in the Liberals being elected.