Gordon Gibson: ‘School tax’ is confiscatory wealth tax on lifetime savers

Traditionally, finance ministers buy new shoes before a budget. Carole James ordered army boots.

The first boot was called the “speculation tax.” Wrong words. It is a frontal attack on private property, hitting foreigners and Canadians equally. There is so much dust in the air that the outcome is unclear at the moment.

For sure, thousands of ordinary British Columbians will have their family, work commute, vacation or retirement plans troubled by this one. With our declining dollar and even after the foreign tax, wealthy foreign buyers will find discount prices in the turmoil. They will then outwait this government in a way that ordinary people can’t.

The fuss from the first boot has forced some relief to actual British Columbians. Not much to other Canadians though, who are still (less heavily) targeted. It is a strange unequal vision of our country. Next time we take our seat around any federal-provincial bargaining table for whatever, B.C. can expect few friends.

But now for the much bigger one, the second boot, that has almost gone unnoticed. That is the sneakily named “school tax,” but no schools here. It is a revenue grab properly described as the “wealth tax.” When the label on a package is deliberately misleading, it’s time to sniff inside. This one stinks.

Economics 101: There are three basic things you can tax: income, transactions and wealth.

Income we tax progressively, at higher rates as the dollars rise. Those who earn more, pay more. No surprises, the principle is established.

Transaction taxes — mostly sales taxes on new things — are fine. You consume more, you pay more. That is a flat tax on value-added.

Transaction taxes on old things — used cars or houses — are not fine. No value is being added here. The result is a restriction on trade, which locks people in — into larger houses they should sell, for example. The property transfer tax is in this category, and the new five-per-cent rate is oppressive.

Finally we get to the “wealth tax” — what the NDP is calling the “school tax.” We have always had this in simple form, through real property tax. Everyone pays the same rate, notionally to pay for municipal services to property.

But this “wealth tax” is a big, big change from property tax and more confiscatory than all of the above together. For the first time ever, property is to be taxed progressively. The more valuable the property, the higher the percentage rate, yielding a devastating hit on ordinary homeowners in runaway real-estate markets.

No one knows the unintended consequences of this. The government admits it has done no studies. There has been no advance consultation of the sort that could have saved Gordon Campbell’s doomed HST.

There are some obvious dangers. The rates look small but already would extract huge dollars and, worse, will be very easy to change. That added 0.4-per-cent new top rate on total assessed value (every year) can quickly go to 0.6 per cent or higher — just the stroke of a pen in Victoria. That $3-million threshold can so easily be lowered bit by bit to $2.5 million or $2 million as the easiest way to stick it to lifetime savers.

Class warfare, here we come.

This tax is a direct threat to savings. Tax someone’s income this year and it can be replaced. Take someone’s savings each year, though, and bit by bit they are gone. Forget your inheritance, kids.

The “wealth tax” also stands to be a major deterrent. Wealth and talent very often go together. Why would any talented person come to such a uniquely unwelcoming place as B.C.? There are lots of other nice places in the world. This is not the way to become a “tech hub” — that super economic driver that politicians love to talk about.

The NDP is aiming for a redistribution of wealth. If that is your goal, surely there are better ways.

James is a decent human being. Some backroom ideologues wrote this tax. The whole situation just screams for a walk-back and the appointment of a committee or royal commission to look at the “wealth tax” as arguably the most radical change in tax policy in North America in 100 years. Forget the extra revenue for a year and discuss if this is right, or how it should be changed. Otherwise risk getting it very, very wrong.

A lot of people voted for change in the last election. I don’t think most people voted for huge, unknown and unintended consequences. Fabled Premier W.A.C. Bennett lasted 20 years, in part because he occasionally took a “second look.” Premier John Horgan might learn from that.


Kevin Falcon: BC’s new Speculation Tax also punishes non-speculating tax paying Canadians

The BC NDP’s recently-introduced raft of new housing taxes is shaping up to be a political and economic train wreck that will only make housing even less affordable for British Columbians.

Let’s start with the new so-called “Speculation Tax.”

Most British Columbians can support the concept of a new 2% annual tax being levied on foreign owners of residential homes, who pay no Canadian income taxes.

However, the NDP tax has morphed beyond this relatively supportable proposal developed by academics and economists in 2016, to now capture British Columbian and Canadian taxpayers. Out of province Canadian property owners, who already contribute through local and federal taxes, will now potentially face additional annual taxes of tens of thousands of dollars.

Of equal concern, many Canadians have purchased residences in BC and visit for part of the year, until they’re able to retire full time to our beautiful province. Why on earth is government hammering non-speculating taxpaying Canadians, who are often an important part of our tourism and seasonal economies?

The BC government tries to pretend the Speculation Tax will have little or no impact on British Columbians because we will be able to deduct the new tax against the provincial portion of our income taxes paid.

But unlike the broadly supported 2016 academic proposal, the NDP tax will deduct only the provincial portion of taxes paid. Most of our income taxes are paid federally and this NDP provision does little to reduce the impact this tax will have on British Columbians who own recreational, seasonal, and secondary properties.

Imagine those retired or with modest incomes, who will discover to their horror that the family cottage or cabin they’ve owned (for generations in many cases), will now cost them thousands of additional dollars per year.

Regretfully, it’s not just the Speculation Tax that hits British Columbians. A significant new School Property Tax on residential properties worth over $3 million dollars will now apply.

This will be in addition to the existing School Tax and more importantly it is not specifically allocated to the education system, but rather general revenues. It is simply a wealth tax by another name. Since it will also apply to virtually all residential development sites, look forward to potentially hundreds of thousands of dollars in new annual costs for a typical development site.

If the NDP truly want to ensure only speculators are targeted, the tax should be amended to exempt those owners who can provide evidence they have municipal applications underway to build new housing on the sites.

What’s more, the new additional Luxury Property Transfer Tax will increase from 3% to 5% on homes valued above $3 million dollars. While the ‘tax the rich’ crowd will take some joy in sticking it to those fortunate enough to live in expensive homes, I’ll remind them that when the Property Transfer Tax was introduced some 30 years ago, 95% of homes were valued below the then $200,000 exemption threshold. Now virtually none are.

Finally, and most importantly, the Speculation Tax as currently proposed, when layered onto the NDP’s new School Property Tax and increased Property Transfer Tax and Foreign Buyers Tax, will only make housing affordability even more of a problem. By applying these taxes to vacant development sites purchased to provide new housing (including rental units), the provincial government has only imposed massive new costs, which will inevitably get passed along to the homebuyer or tenant.

As a former Finance Minister, these tax changes reek of tax policy being made on the fly. In a shocking admission, the Finance Minister acknowledged that there was no modeling done prior to introducing these changes.

Lately the Minister is suggesting ‘tweaks’ may be made in the fall, thus creating further uncertainty while the government tries to understand the policy implications after the fact.

The NDP would be better off re-focusing on the original intent of having non-Canadian taxpayers paying their share for the privilege of owning residential real estate in BC. Hammering Canadians, and particularly British Columbians, makes no sense at all, especially when it exacerbates the housing affordability issues British Columbians already face.


Opinion: Letter to Premier Horgan from ex-CEO of Canadian Western Bank

Dear Mr. Horgan,

Having read much of the back-and-forth from both sides on this tax, and giving consideration to the macro-consequences of its potential, I felt compelled to share my views on your proposed “speculation” tax with the government before finalization of details and/or implementation of the tax (or some derivation of it).

I have worked all across Canada throughout my career, and most recently retired in 2013 as CEO of Canadian Western Bank after 23 years at the helm. From my discussions with individuals in most of the larger financial institutions doing business in B.C., it appears they have significant concerns about the potential negative consequences of the tax. However, given that those institutions are more reactive than proactive in driving legislation, I suspect you likely won’t hear much from them during your consultation period as they prefer not to wade into politics, but rather will simply react to their effects once implemented.

When presented with such potentially deleterious legislation affecting their businesses, banks must undertake a full review of their current mortgage-loan portfolios to determine how many may be offside the loan-to-value ratios once the tax is implemented and property values fall as anticipated. As you are aware, becoming offside those loan ratios has significant and real consequences to a financial institution, requiring them to take certain steps to make sure they’re in compliance with the legislation.

In addition, the banks will be undertaking a review of their construction loan book of business, both current and proposed, in an effort to determine (1) how many of these projects will have misstated revenue numbers (innocently mind you, as they couldn’t have predicted the negative effect the tax was going to have on their retail prices); (2) what percentage will lose their pre-sales that collapse after implementation of the tax; and (3) which are offside of their loan covenants due to the impact of the tax on property values and borrowers’ abilities to repay their loans. Further, any loans that have been approved, but not yet drawn, will most likely be frozen until a further and better understanding of the tax’s impact is known. These projects will end up suffering significant losses due to this uncertainty and delay, resulting in many simply not proceeding, which causes a trickle-down negative effect on contractors, tradespeople, realtors and others in the economic chain.

In addition, the government should appreciate that all appraisals conducted by the banks in respect of future or pending mortgage applications will be of no use, as the banks will not be able to rely on them, since they would be conducted before the implementation of the tax and thus wouldn’t have the impact of the tax built into them. The true effect of the fall in prices may not be known until later this fall or next spring as the markets will need time to settle out after the negative impact of the tax. It’s likely that appraisals won’t become reliable for the purpose of approving loans until that time.

A regressive and punitive tax like the one proposed will immediately drain business confidence in the province, and make investors reluctant to consider B.C. as a place to invest their capital. Investors and businesspeople have options as to where and when to invest their money, and the more B.C. is made to be a difficult and expensive jurisdiction to invest in, the less capital that will flow in, and the fewer jobs that will be created for the very people you’re trying to help in the province.

In closing, based on my knowledge of the banking industry and its propensity to be cautious and defensive in times of patent uncertainty such as will be the case with this new tax, my advice would be to withdraw from this regressive and potentially disastrous new tax and instead look for a policy that will achieve the desired result, being a significant and meaningful increase in the number of affordable-housing units in the province. Whether that be by way of incentives, subsidies, regulations or restrictions, is entirely up to your government.

But to try to solve the problem by taxing unsuspecting Canadian owners is patently un-Canadian and ill-conceived, and in the end will be to nobody’s best interest. There is a tremendous amount of innovation and creativity available out there, so why not tap into it.

Yours truly,

Larry Pollock, retired CEO, Canadian Western Bank


Mike Smyth: The taxman cometh and you will pay more starting on April 1

Vancouver gas prices were already the highest in North America even before the latest price spikes cranked up the pain at the pumps to excruciating levels.

Now get set for an even harsher whack to your wallet, as British Columbia’s carbon tax is scheduled to jump on April 1.

The carbon tax will rise 1.11 cents per litre on April Fools Day, pushing the total amount of B.C. carbon tax levied on a litre of gas to 7.78 cents.

That might not seem like a lot in isolation. But when it’s added to the already soaring cost of gasoline in the province, you can bet even more B.C. vehicles will stream across the border to fill up in Washington state. And don’t forget those jerry cans!

Premier John Horgan felt the heat last week when grilled about gas prices going up, up and away to a record $1.55 a litre.

His answer was an astonishing one, as he insisted it was up to the federal government to do something about B.C. gas prices.

“I would certainly love to see the federal government take some leadership in this regard,” Horgan said, in a comment that left his critics practically sputtering.

“You’ve got to be kidding me,” said Kris Sims of the Canadian Taxpayers Federation. “His own government is jacking up gas prices next week and he wants Ottawa to do something about it? Unreal.”

Horgan, meanwhile, was asked whether construction of the controversial Kinder Morgan pipeline might bring Lower Mainland drivers some relief. His response was another doozy.

“The Kinder Morgan proposal, as it currently constructed, will not bring down gas prices,” Horgan said.

Gas price analyst Dan McTeaugue said he laughed out loud when heard Horgan make the claim.

“He’s either getting bad advice or he’s actually not aware that the pipeline will in fact lead to greater amounts of fuel into the Lower Mainland market,” said McTeague, of the price-watching website gasbuddy.com.

“The existing line has been approved to be upgraded. So that allows more gasoline, more diesel and more jet fuel to be shipped, which the Lower Mainland desperately needs.”

But, at the same time he jacks up the carbon tax, Horgan is also fighting the pipeline in court. Drivers can only watch and weep as they pay more at the pumps.

Sadly, the inflated carbon tax is only one item on a long list of taxes, fees, rates and fines set to soar in British Columbia in the near future:

B.C. Hydro: On the same day the carbon tax goes up again, your B.C. Hydro bill will rise three per cent. And if you seem to remember Horgan promising to freeze Hydro rates during last year’s election, don’t worry: Your memory isn’t faltering.

The B.C. Utilities Commission overruled the rate freeze, saying B.C. Hydro couldn’t afford to keep Horgan’s brazen promise.

“The NDP budget bungling is not making life more affordable — it’s becoming more expensive for working families,” fumed Liberal leader Andrew Wilkinson.

Employer Health Tax: This new payroll tax replaces unpopular Medical Services Plan premiums, which the government is phasing out. But if you think a tax on employers won’t hurt employees, think again.

I’m already hearing from blindsided business owners who say they have no choice but to pass the tax on to their customers in the form of higher prices. The tax could also trigger layoffs and cancel pay raises, the B.C. Business Council warns.

Speculation Tax: This is the one the B.C. Liberals re-named the “cabin tax” because it doesn’t just wallop foreign real-estate speculators (as originally promised) but it also hits B.C. owners of vacation properties.

This one has a distinct whiff of politics, as the ruling New Democrats seem to like seeing the Liberals defend the interests of people rich or fortunate enough to own a lakeside cabin or a ski chalet.

But a backlash is brewing. Several B.C. municipalities are demanding to be exempted from the tax in a revolt that could gain steam.

Photo radar: The government is reformatting those existing red-light cameras at intersections to catch speeders, too, originally suggesting the fine revenue would be used to lower the ICBC premiums of safe drivers.

What a great idea! Crack down on the bad drivers and award the good ones. But that was before Attorney General David Eby said the money would be given to municipalities. Can more ICBC rate hikes be far behind?

Transit Taxes: Metro Vancouver’s transit system needs expensive upgrades and the money has to come from somewhere. And that somewhere would be your wallets and purses.

TransLink will hike property taxes, parking fees, transit fares and impose a development cost charge on new home construction.

Airbnb tax: The “sharing economy” is red hot and the government figures it time they started sharing the wealth in the form of new taxes. So Airbnb operators must start collecting a provincial sales tax of eight per cent and a municipal and district regional tax of up to three per cent.

Speaking of the sharing economy, the government is still promising to legalize Uber and other ride-hailing services at some point. Want to bet that gets whacked with new B.C. taxes, too? You heard it here first.

Tobacco tax: Another April Fools Day tax hike on smokers will add another $5.60 to the price of a carton of cigarettes. And if tobacco is not your smoke of choice, the taxman is still coming to get you. When marijuana become legal later this year, you’ll pay a 10-per-cent federal excise tax.

Home inspection fees: The provincial licensing fee for home inspectors is shooting up 36 per cent on April 1, followed by scheduled 25-per-cent increases in 2019 and 2020. As usual, the fee hike is expected to be passed along to consumers in the form of increased rates charged by home inspectors.

Expensive homes and luxury cars: I saved these for last because there’s not a lot of sympathy out there for people who own homes valued at $3 million or sports cars priced at $125,000. Taxes are going up on both.

Don’t forget the governing NDP campaigned on a promise to make life more affordable for people. And, to be fair, they did eliminate bridge tolls, they’re phasing out the MSP and they’re promising relief for child care and housing costs, especially for low-income families.

But, with so many taxes shooting up, many will just feel more pain in the pocketbook.




Mike Smyth: Liberals raising cash to fight the NDP’s ‘cabin tax’

The NDP’s “speculation tax” on real estate is really nothing of the sort when you consider who’s getting whacked with the new tax — and who isn’t.

Premier John Horgan promised during last year’s election to crack down on foreign property flippers who use the real-estate market like their own personal Monopoly game.

The NDP’s solution: A two-per-cent annual tax on properties purchased by buyers who do not pay income tax in the province, with the money used to build affordable housing for people who actually live and work here.

But the tax unveiled in the February budget goes after owners of empty homes, including vacation properties owned by British Columbians who pay income tax here.

How is someone who owns a cabin on a lake suddenly deemed to be a “property speculator” in the eyes of the government?

Horgan himself said the government wouldn’t target such people.

“If you have a home in Vancouver and a home in Penticton that you visit in the summer or to ski in the winter, that would not fall in with the out-of-province speculation tax,” Horgan said.

But the government is going after vacation properties, despite what Horgan said, sparking anger from owners who feel double-crossed.

“I inherited a cabin on a Gulf Island from my parents that we visit in the summer because you wouldn’t want to go there is the winter — it has no insulation,” a reader emailed me last week.

The tax does not apply if the secondary property is rented out full-time, but that’s not always possible.

“I wouldn’t be able to rent it out unless I spent a fortune to properly winterize it,” the reader said. “And I don’t want to rent it anyway. But now I’m a ‘speculator’ because my dad bought a cabin 30 years ago.”

Finance Minister Carole James explained the tax is designed to encourage people to rent homes out, rather than let them sit empty in low-vacancy rental markets.

But, if that’s case, why has the government only imposed the tax in certain regional districts including Metro Vancouver, Fraser Valley, Victoria, Kelowna, Kamloops and Nanaimo?

The tax does not apply in Whistler, which is full of vacation properties bought by rich absentee owners in a community struggling with a rental shortage.

James said the government is reviewing the tax and may announce changes by the fall, as Liberal Leader Andrew Wilkinson vows to fight the NDP’s “cabin tax.”

“It does nothing to curb real-estate speculation. Instead, it unfairly penalizes B.C. residents,” Wilkinson wrote in a fundraising pitch to Liberal members.

I suspect James will amend this broken-promise tax. But, in the meantime, I think the New Democrats are enjoying the spectacle of the Liberals defending the interests of those wealthy or fortunate enough to own vacation properties.