Small business tax backlash tops agenda for Liberal caucus retreat

Toronto MP John McKay (Photo by Office of the Honourable John McKay – Contact us/Photo submission, CC BY-SA 3.0)

OTTAWA — As they prepare to return to the parliamentary hot seat in two weeks, it seems somehow appropriate that Justin Trudeau and his federal Liberal colleagues are holing up in Kelowna, B.C. — amid smoke from nearby wildfires — to plot strategy.

Liberal MPs are bracing for sparks to fly during the fall sitting of the House of Commons over a host of issues — first among them, controversial proposals to eliminate tax loopholes the government maintains give wealthy small business owners an unfair tax advantage.

They’re expecting the Conservatives to fan the embers of public outrage over the prime minister’s decision to pay millions in compensation to Omar Khadr, the one-time detainee in the notorious American prison at Guantanamo Bay, Cuba.

They’re also expecting grief over the flood of refugee claimants arriving at unofficial border crossings and the ongoing fiasco with the Phoenix pay system, which has seen thousands of public servants overpaid, underpaid or not paid at all.

Then there’s the legislative agenda packed with potential landmines, including passage of a bill to legalize marijuana by next July — a speedy timetable meeting stiff resistance in some provinces.

And all this at the halfway point in the Liberals’ mandate, as all parties begin to sharpen their knives for the next federal election in two years.

For all that, as they arrive in Kelowna today for the two-day retreat, Liberal MPs are upbeat about their ability to weather the political wildfires to come. The sluggish economy is finally showing signs of strength, Trudeau’s popularity remains high and their constituents, backbenchers say, are relatively satisfied.

“My observation is that the Canadian public, as a general proposition, is still in love with Prime Minister Trudeau and a good part of it has to do with the handling of NAFTA and the related Canada-U.S. relationship,” says Toronto MP John McKay.

Trudeau’s deft handling of relations with the United States’ unpredictable president, Donald Trump, has been the topic most discussed on the summer barbecue circuit, McKay adds, and it’s won praise even from those “who are pathologically inclined to hate Trudeau.”

Fellow Toronto MP Rob Oliphant believes the prime minister has benefited from comparison with Trump. His constituents have been following events in the U.S. closely and what he’s heard during door-knocking is “thank God we’re not there.”

“I’ve canvassed about 15 polls, 17 polls in the last two weeks … and people were overwhelmingly happy.”

Gatineau, Que., MP Steve MacKinnon agrees the Liberals are “in pretty reasonably good political shape, maybe even more than reasonably good shape, especially in Quebec.” But he cautions that there’s also “a lot of volatility” among voters so “there’s absolutely nothing about Canadian politics that should cause us to be complacent.

“We have to earn it every day.”

On that score, Liberals are taking seriously the revolt by doctors, lawyers, farmers, financial planners, homebuilders, shop owners and other incorporated small business owners who have inundated MPs over the summer with complaints about the proposed tax changes.

The backlash has been building since mid-July, when Finance Minister Bill Morneau released a controversial, three-pronged plan aimed at closing tax loopholes used by a growing number of small businesses, creating what he called an “unfair playing field.”

One change would restrict the ability of business owners to lower their tax rate by sprinkling income to family members in lower tax brackets, even if those family members do no work for the business. Another would limit the use of private corporations to make passive investments in things like stocks or real estate.

The third change would limit the ability to convert a corporation’s regular income into capital gains that are typically taxed at a lower rate.

Consultations on the proposals are open until Oct. 2 and backbenchers intend to use the retreat to pressure the government to make some changes to mollify small business owners.

“I don’t know at this stage how locked-in the government is on their proposals, but I do know there is significant outrage among a relatively influential group of people,” says McKay, who warns that those people will be “really irritated” if the consultations do not result in changes.

Morneau, who held a conference call with Liberal MPs last week to calm their fears and dispel what he maintains are myths about the proposals, will try to do the same today with small business owners and professionals at a Vancouver roundtable before he heads to Kelowna.

Trudeau, meanwhile, is to visit people who are trying to douse real fires, with a visit this afternoon to a Kelowna fire station. He is scheduled to hike Knox Mountain later in the day.