Analysis

It never seems a good time for a tax-the-rich budget: Don Pittis

As Americans get sadder and more divided, Canada's finance minister is waiting to follow Trump's lead. He missed a chance with his budget to start making Canadians as happy as Scandinavians.

In Trump's shadow, Liberals fail to create a budget that could make Canadians as content as Scandinavians

Despite early rumours that Finance Minister Bill Morneau would increase taxes on the rich, it turned out this was not the right time. (Chris Wattie/Reuters)

Maybe it's never a good time for greater equality.

When Finance Minister Bill Morneau and his team of public servants began putting the final touches on his budget a few weeks ago, things could hardly have looked better for the economy.

Oil prices were in recovery, but in no danger of pushing the loonie up enough to discourage Canadian exports.

In fact, exports were looking strong, unemployment was falling. The U.S. economy seemed to be on a roll after the Trump bump sent stocks soaring.

Crazy like a fox?

Following President Donald Trump's coherent speech to Congress, business leaders were increasingly convinced that his odd tweets and bluster were only cover for a shrewd economic strategy. 

Now, of course, things don't look quite as good.

Oil has tumbled from above $55 U.S. a barrel to $48. Suddenly everyone is talking about overvalued U.S. markets and struggles ahead for the U.S. economy.

U.S. President Donald Trump plans to cut taxes for the richest Americans. It's not a sure prescription for happiness, as this Trump supporter found at a rally in Berkeley, Calif., on March 4. (Stephen Lam/Reuters)

Trump seemed crazy like a fox after his speech to Congress. But following his latest statements, including accusations that former president Barack Obama had tapped Trump's phones, business leaders are beginning to fear it is not like a fox. 

Now is not the time

But whether the economy is on a roll or if it is struggling against looming difficulties, Morneau has made it clear this is no time to change the tax laws in favour of equality.

Even before the finance minister presented his budget yesterday afternoon, it had been widely signalled to the media that rumoured increases to capital gains taxes and cuts to large tax perks would not appear in this budget.

The left-leaning Broadbent Institute was among the few to be surprised enough to be annoyed.

"Rather than taking a bite out of the juicy tax loopholes that unfairly benefit the richest Canadians, the Trudeau government has offered up only a few stale crumbs," lamented institute executive director Rick Smith.

"Despite significant public attention, and overwhelming support for action, Budget 2017 completely ignores the inequitable tax treatment of stock options, capital gains and dividends, which are only available to the richest Canadians and which — every year — deprive the federal government of billions of dollars that could be spent to improve the lives of Canadians," said Smith in a release shortly after the budget.

Morneau and Prime Minister Justin Trudeau head to the House of Commons to deliver the budget. (Patrick Doyle/Reuters)

On the other hand, people who are wealthy or who speak for the wealthy have been firmly against any increase on taxes for the rich.

On budget day itself, even after changes to capital gains seemed unlikely, investment adviser Som Sief made a case against more taxes on the wealthy because "raising Canada's capital gains rate could hobble long-term growth."

Montreal investor Stephen Jarislowsky said the government needed to "come to its senses" over the idea of taxing the rich.

"We're trying to rebuild our economy, and I don't think you rebuild the economy by chasing people away who could deliver jobs and build corporations," said Jarislowsky.

Waiting for Trump

As the CBC has reported elsewhere, Morneau has put some of the details of Canada's budget plans on hold partly because of uncertainty about what the Trump administration will do next.

Trump says he will cut taxes for corporations and individuals. The implication is that if Trump does that, Canada may be forced to follow suit to prevent a run for the border by Canadian businesses and rich people.

Research by Stanford University using anonymized documents from the U.S. government shows that a border run is not as likely as some fear. A study of people moving from one state to another because of taxes showed rich people were less likely than others to leave their home state, despite different or changing tax rates.

Karen Nerbo (left) and Kristina Davidsen pose for a picture in Oslo this week after the country was declared the world's happiest, despite high taxes. (Lefteris Karagiannopoulos/Reuters)

"The rich are different from the general population," says the Stanford study. "They more often have family responsibilities … that embed them in place. They own businesses that tie them to place. And their elite income itself embeds them in place: millionaires are not searching for economic opportunity — they have found it."

Happiness and high taxes

In other words richer Canadians, often our respected friends and neighbours, are not likely to escape to Trump's polarized and possibly unstable United States for the sake of a few percentage points in taxes.

If taxes were to go up and some rich people left, they could be consigning themselves to greater unhappiness. 

A recent survey showed the world's happiest people live in places where taxes are high and people feel more equal. Norway came in first. Canada was number 7. The United States was 14th on the list. 

Being equal also makes a country rich and innovative, according to the recent business book Re-imagining Capitalism.

During and since his election campaign, Prime Minister Justin Trudeau has repeated a commitment to equality.

"The benefits of growth must ... be felt by everyone," he tweeted on Labour Day last year.

Many Canadians, including rich ones, agree with him in principle. 

But when it comes to actually doing something, there are always plenty of good reasons why it's impossible just now. This budget is more evidence that there really never is a convenient time to increase equality.

Follow Don on Twitter @don_pittis

More analysis by Don Pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.