Morneau flooded with more than 10,000 messages over controversial tax plan: memo

Finance Minister Bill Morneau was inundated with more than 10,000 missives last fall following the release of controversial tax-change proposals that infuriated the small-business community, according to an internal federal document.

The memo, obtained by The Canadian Press, says the flood of messages addressed directly to the minister came in addition to more than 21,000 email submissions his department received as part of a related public consultation process.

The Nov. 15 briefing note to the deputy finance minister also said the department had yet to process all the tax-related responses at that time — even though more than a month had passed since the end of the consultation period.

"The tax policy branch has been actively sorting through submissions in order to segregate those containing substantive policy comments for further analysis by those involved in policy development," said the "secret" memo prepared for Paul Rochon and obtained through the Access to Information Act.

"As expected, the consultations mostly attracted submissions from taxpayers that would be affected by the proposed tax changes."

Morneau's tax-reform proposals for private corporations came under fire following their release last summer. A vocal group of opponents spent months criticizing the plan and warned it would hurt the very middle class the Trudeau government has claimed to be trying to help.

Morneau insisted the proposals were designed to stop wealthy owners of private corporations from unfairly taking advantage of the system.

However, the uproar eventually forced him to back away from some elements of his plan after the conclusion of a 75-day consultation period that ended Oct. 2. He insisted some of the changes to the original plan would mean only the top three per cent of the wealthiest owners of private corporations would pay more taxes.

Proposal criticized

The memo to his deputy minister listed the most common criticisms found in the submissions.

They included complaints the consultation period was too short, that the changes would have retroactive consequences on retirement plans created under the current rules and that farmers were too busy with their harvests to thoroughly examine the proposals.

Other key objections said the proposals would harm small and medium-sized businesses and unfairly compare the tax burdens of entrepreneurs to those of employees. They note that some employees receive additional non-salary benefits or enjoy greater job security than small business owners.

Another frequent statement in the submissions argued that business owners should be entitled to split income with spouses because they make significant direct and indirect contributions to the operations.

The government, which previously announced it had received 21,000 submissions during the consultation period, took steps to address some concerns by tweaking and removing parts of the plan.

As he faced the backlash, Morneau also followed through on a 2015 campaign pledge to start lowering the small business tax rate.

Concerns remain

But critics of the plan, including the president of the Canadian Federation of Independent Business, said Monday that entrepreneurs still have concerns with the government's proposal.

For example, Dan Kelly said stricter rules on passive investment income will hurt some small business owners that have used the method to set up retirement plans. Details of the passive-income change, which some estimate will eventually add billions every year to government's bottom line, will be released in the spring budget.

Kelly said businesses are also trying to understand new rules that make it more difficult for small-business owners to lower their tax burden by sprinkling some of their earnings to family members.

"I'm not shocked, but it is nice to see how many Canadian entrepreneurs clearly reached out and expressed their worries," said Kelly, who has lobbied the government for decades.

"It looks like a fairly truthful list of the major criticisms of the tax-reform package ... Finance has summarized this correctly."

The right balance

A spokeswoman for Morneau said Monday the government has taken into account the feedback it received from written submissions during the consultation process as well as face-to-face meetings.

"Because of their input, we were able to strike to right balance between a fairer tax system while cutting taxes for small business," Chloe Luciani-Girouard wrote in an email, in reference to the tax reduction for small businesses.

The anger over the tax proposals also put more scrutiny on Morneau's own substantial assets and how the former businessman arranged his affairs after entering office.

Morneau battled ethics-related controversies throughout the fall and political opponents are sure to resume their attacks as MPs reconvene in the House of Commons this week for the first time since mid-December.

He's also denied conflict-of-interest accusations related to proposed pension-reform legislation, which has prompted a formal examination by the federal ethics commissioner.