Wealth management insiders say they’re hopeful new Finance Minister Chrystia Freeland will provide Canadians with greater clarity about the direction of the Liberals’ fiscal and tax policy as the government steers its way through the economic difficulties caused by the Covid-19 pandemic.
“There’s a need to really reset the existing framework,” says Ian Russell, president and CEO of the Investment Industry Association of Canada in Toronto.
“We haven’t had a [federal] budget, we never had a coherent fiscal plan [under Morneau], and there’s now a deficit of $343 billion.”
Jamie Golombek, managing director of tax and estate planning at CIBC, says a budget is necessary to hold government accountable. “I think it’s irresponsible not to have a budget for 18 months basically.”
The federal budget was scheduled for release in March but postponed due to the pandemic. While the government issued its economic and fiscal “snapshot” in early July, it hasn’t produced a formal budget since March 2019.
Prime Minister Justin Trudeau named Freeland to the role of finance minister, the first woman in Canadian history to hold the position, on Tuesday, while asking her to retain her deputy prime minister role and relinquish her role as minister of intergovernmental affairs. Trudeau also asked Governor General Julie Payette to prorogue Parliament, with his government returning to deliver a throne speech on Sept. 23.
Elliot Hughes, senior advisor with Ottawa-based Summa Strategies Canada Inc. and former deputy director of tax policy for former finance minister Bill Morneau, says that it “makes sense for the government to do a full reset in response to the pandemic and the ensuing economic crisis.”
Freeland “has shown over and over that she’s a very competent minister” in the various cabinet roles she’s held, he added.
Hughes says that Bay Street should find in Freeland “a strong supporter of business and the business community in Canada” — notwithstanding her 2012 book Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else.
“She has spent time over the last several months engaging with business leaders across the country because of her role as deputy [prime] minister and having been involved in coming up with the [Covid-19] restart agreement with provincial leaders,” Hughes says.
“I think the business community will be surprised at how open and welcoming she’ll be in the finance minister role.”
Russell applauds the decision to name Freeland as Morneau’s replacement. “[She] is imaginative, energetic and more responsive to a wider range of solutions and will have a strong capacity to articulate and will have a lot of influence with the prime minister and the cabinet.”
While Morneau did a good job at keeping Canadian employment levels high prior to Covid-19, Russell says, his policy-making was otherwise “uninspired” and did little to promote growth.
“He dented confidence with the bumbling of taxation of small businesses, and all of the talk about infrastructure spending never amounted to much,” Russell says.
John Nicola, wealth manager and CEO of Nicola Wealth in Vancouver, says that he believes there’s a risk, with Morneau’s departure, that the Liberals, under Finance Minister Freeland, will choose to turn the taps on big progressive spending programs. If it were to happen, however, he doesn’t think such spending is likely to be paid for with big tax increases, which would be unpopular politically.
“At the end of the day, there’s a lot to be said for continuing to print and dole out money and keep everything balanced, and not massively rock the boat, especially when you’re [a minority government] on a precarious edge,” Nicola says.
Golombek agrees that the government will be limited in terms of its ability to hike tax rates.
“Certainly on the personal side, tax rates are already very high — over 50% [combined federal-provincial rates] in most of Canada — and they kick in at a relatively low dollar amount.” He also sees a wealth tax as administratively difficult to implement, and unlikely to happen.
However, there may be a greater likelihood the government would raise the capital gains inclusion rate: “It has certainly been talked about for five years now, ever since the Liberals have been in government, as they have been really focused on increasing taxes on upper income and wealthy Canadians.”