Pallister, small business owners blast Trudeau government's tax reforms

Manitoba Premier Brian Pallister spoke out Friday against the federal government's controversial tax reforms, which have angered business owners, doctors and farmers across Canada.

The rhetoric used by the federal government, which has talked about closing "loopholes" in the tax system, amounts to "class warfare" and threatens to stifle economic growth, Pallister said during a Friday afternoon news conference.

"That's not in the best interests of this country, and I certainly don't want to see Manitoba — which is now on the rebound, where we are leading the country in the fact we have employment, not unemployment, where we are leading the country in terms of business optimism — I don't want to lose that momentum," Pallister said during an interview with CBC's Power and Politics.

The federal Liberal proposals to eliminate several tax incentives designed for private corporations have attracted waves of complaints from a range of sectors — as well as some backbench Liberal MPs.

Although the federal government says the changes are targeted at higher-income earners — those making more than $150,000 per year — opponents of the new rules say they will hit business owners who fall firmly within the "middle class."

Pallister and the Canadian Federation of Independent Business used Western Marble and Tile as the backdrop for their attack on Ottawa's proposed changes.

Company owner and CEO Jeremy Mathison bought the business several years ago and said he's invested over $3 million since then. The Liberal tax changes would "punish" his business and might mean the 30 employees working for him now might drop to 20 next year because of the shift, Mathison said.

"I just see every year our taxes continuing to increase, whether it's payroll, CPP or small-business tax. I pay a business tax now where I still don't have an answer for where it goes. I recycle all of my water in this building and yet I pay a sewer tax. It just doesn't make sense to me," Mathison said.

Pallister was joined by CFIB president Dan Kelly, who said his membership has indicated they oppose the changes, which they think will make it harder for small and medium-sized businesses to grow.

"Some say it's unfair for small firms to have a lower rate of taxation than larger counterparts, but I think this comes from a real misunderstanding about what small businesses do in the first place and how they're taxed in the first place," said Kelly.

Businesses pay double the rate of Canada Pension Plan premiums, as well as 40 per cent higher Employment Insurance premiums, but are not eligible to receive EI benefits.

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Federal Finance Minister Bill Morneau first released the three-part tax plan in mid-July.

Morneau and Prime Minister Justin Trudeau have argued that the tax system unfairly encourages wealthy Canadians to incorporate, so they can get a better tax rate than middle-income earners.

They say the changes are meant to end tax advantages that some wealthy business owners have unfairly exploited and to ensure all Canadians have a level playing field.

Morneau has also said there is a lot of misinformation circulating about the impacts of the proposals and Ottawa has been trying to bring clarity to the debate.

Legitimate reasons for income sprinkling: CFIB

The package includes restrictions on the ability of business owners to reduce their tax rate by sprinkling their income to family members in lower tax brackets, even if those family members do not contribute to the company.  

CFIB president Kelly said there are legitimate reasons why business owners might spread their business income among members of their family, who often play informal roles within a firm. He said the CFIB is willing to work with the federal and provincial governments to find ways of making the tax system more fair.

Morneau also proposed limits on the use of private corporations to make passive investments that are unrelated to the company.

Another change would limit business owners' ability to convert regular income of a corporation into capital gains, which are typically taxed at a lower rate.

"I and many others I know have made major financial sacrifices in exchange for the autonomy of running their own businesses," said Jackie Wild, creative director of Delight Digital and board member of the Manitoba Filipino Business Council, who spoke at the Friday event with Pallister.

"We don't have the luxury of company benefits, insurance, vacation time, sick pay or pensions." 

Consultation period ends Oct. 2

The government launched a 75-day public consultation period in July, which ends Oct. 2. Morneau has said he's listening to feedback about the proposals and that he's open to making changes, if necessary.

Farmer Curtis McRae of G&G Farms in St. Andrews, Man., also spoke at Friday's event with Pallister. He said holding the consultation period during harvest season is a sign of disrespect towards farmers. He also argued the changes will make it harder for farmers to pass on their businesses to the next generation.

Pallister said he wants the federal government to extend the consultation period.

Manitoba Finance Minister Cameron Friesen wrote Morneau to demand that he hold off on the tax reforms until after the provincial finance ministers meet with him in December.