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Andrew Perez: It’s time. Justin Trudeau must go

Commentary

Water drips from the hair of Prime Minister Justin Trudeau as rain falls while he speaks in Nemaiah Valley, B.C., June 26, 2024. Darryl Dyck/The Canadian Press.

The stunning Conservative by-election win in Toronto-St. Paul’s last month has plunged Trudeau’s Liberal Party into a nadir and resulting leadership vacuum. The perilous state of the party is only exacerbated by several high-profile Liberals calling on Trudeau to resign and make way for a new leader and prime minister.

The Conservatives’ upset win in the tiny mid-Toronto riding represented a perfect storm scenario for Poilievre’s party. A mixture of national and local dynamics coalesced in Conservatives’ favour in one of the most bedrock Grit seats in the country: a constituency not won by a centre-right party since Mulroney-era cabinet minister Barbara McDougall claimed it for a second time in the free trade election of 1988.

While a Liberal victory still appeared like the most likely outcome heading into election day, the deep unpopularity of Trudeau’s government loomed large over the entire Liberal operation in Toronto-St. Paul’s.

The government’s handling of the Israel-Hamas War and the recent increase in the capital gains inclusion rate rubbed many residents the wrong way in what is largely an affluent riding home to a sizable Jewish community.

The result: many traditional Liberal voters stayed home or bolted to Poilievre’s Conservatives with the aim of sending Trudeau a stern warning. And they succeeded.

Losing a historically Liberal riding at a time when the government’s fortunes continue to plummet represents a full-blown crisis for a party built around Trudeau’s image.

Sean Speer: Young Canadians are stuck. Here’s a simple way to kickstart their lives

Commentary

Erfan Nouraee is pictured in the family home he shares with his mother in Toronto on Thursday, January 20, 2022. Chris Young/The Canadian Press.

A majority of Canadians think that Canada is broken after years of stagnant incomes, affordability challenges, rising crime, government failures on basic functions like healthcare and immigration, and a deepening cultural malaise. But decline is a choice, and better public policies are needed to overcome Canada’s many challenges. Kickstart Canada brings together leading voices in academia, think tanks, and business to lay out an optimistic vision for Canada’s future, providing the policy ideas that governments need to ensure a bright future for all Canadians.

Although the Trudeau government’s 2024 budget purported to be about “generational fairness,” it was heavier on rhetoric than substance. Its signature measure—an increase to the capital gains tax rate—will harm those with assets but do nothing for those who aspire to accumulate them. It amounts to an act of class warfare masquerading as a solution for generational fairness.

A real generational fairness agenda would aim to help young Canadians purchase a home, start a business, invest in markets, and ultimately build wealth for themselves and their families.

The biggest impediment to these goals is they cannot afford to. They cannot get ahead. They’re graduating university with student debt and then struggling to find jobs that match their credentials, cover exorbitant rental prices, and still save for the future. One estimate is that it now takes 25 years for the median earner to save for a downpayment on a representative home in the City of Toronto.

The result is a “failure to launch.” Young Canadians are living with their parents longer, delaying getting married until later, and starting families at ages that preclude them from having as many children as they tell pollsters they want. One consequence is that they’re growing increasingly discouraged about the future and the country.

Reversing these trends won’t come from tinkering on the margins or taxing older Canadians. There’s a need for a more radical policy to help young people save and invest—to “kickstart” their family and professional lives.

One idea would be to extend the principle of the lifetime capital gains exemption to income taxes. The government could shield from taxation some percentage of one’s lifetime earnings as a recognition that we have a collective interest in people successfully transitioning from education into employment and starting to build wealth for themselves and their families.

One option would be to set the threshold for the exemption at one’s first $250,000 in income—which is a bit more than the minimum downpayment for the average home in the City of Toronto. The amount is scalable—it could be set higher or lower depending on different factors, including revenue loss.

Such a measure wouldn’t necessarily be regressive because those with high incomes would exhaust their lifetime exemption much faster than those with lower incomes. The median income for those aged between 25 and 34 years old in 2022 was $48,100, so the median earner would exhaust his or her exemption within roughly five years.

This wouldn’t be a policy alternative to the basic personal exemption designed to recognize the costs of meeting one’s basic needs in any given year. As one exhausted his or her lifetime exemption and started to be subject to income taxes, they would still have basic expenses that the tax system ought to account for.

Although a lifetime exemption would in theory create a high marginal effective tax rate (i.e. as it was exhausted, tax filers would face a steep tax increase on their incomes), the incentive effects strike me as pretty low. For low-income earners, they’ll still need the employment income to meet their basic needs even after an exemption is eventually exhausted, so it’s unlikely that it creates a big work disincentive. High-income earners will exhaust the exemption in short order and go on to earn more. There could be some households where the second earner may stay in the labour market long enough to maximize the lifetime exemption and then exit to raise children or volunteer or whatever. The numbers would likely be small enough that there would be no significant macroeconomic effect.

One policy consideration that would require some attention is the transition. Whenever a policy like this is enacted, there will be some who find themselves on the wrong side of the start date. Policymakers would need transitional measures for those who’ve been earning income for some period prior to the implementation date but haven’t yet hit the income cutoff.

Revenue loss estimates are beyond my capacity. The lifetime capital gains exemption is claimed by 55,000 per year and costs roughly $2 billion in annual revenues. A lifetime income tax exemption would presumably cost more.

According to Statistics Canada, there were just over 5 million tax filers between the ages of 25 and 34 who reported income in 2022. Some share of this group would no longer be eligible because they’ve already earned income. Suppose one-third of these tax filers were eligible and earned the median income of $48,100, then my back-of-the-envelope estimate is that it could cost the federal government about $7.5 billion per year. To the extent that this estimate is directionally correct, it’s roughly the equivalent of two-thirds the cost of a one-percentage-point cut to the HST/GST.

There aren’t, to my knowledge, other jurisdictions that have adopted such a policy. Others have exemptions for certain types of incomes (similar to Canada’s capital gains exemption) or socio-economic circumstances such as Hungary’s pro-natal exemption on mothers with more than four children.

It has however been the subject of some academic analysis and debate. Roger Martin, the former dean of the University of Toronto Rotman School of Management, and Herwig Schlunk, a law professor at Vanderbilt University, have both published articles broadly in favour of lifetime income taxation.

The proposal outlined here comes with a strong Canadian conservative pedigree. A similar version was put forward by Tony Clement in the Conservative Party of Canada’s 2004 leadership election which he lost to Stephen Harper—though he made it revenue neutral by fundamentally reorienting the tax system over one’s lifetime such that it was offset by tax increases as his or her income grew. Clement called it his “jump start proposal” at the time.

My proposal doesn’t envision changing the base of taxation or the time horizon at which it’s applied. It would simply establish a new lifetime income tax exemption on say one’s first $250,000 in income. It doesn’t set out broader structural changes—though of course a government would be free to enact them in parallel with what’s proposed above.

Roughly twenty years after Clement helped to introduce the notion of lifetime income taxation into our politics, the case for such a reform has only grown stronger. Canadians are struggling. They’re stuck. And they’re growing increasingly pessimistic about their own futures and the future of the country itself. We don’t need to resign ourselves to this state of affairs. There are ways to help them get ahead and reward work, savings, and investment.

If we’re generally committed to generational fairness—that we have a collective interest in the ability of young Canadians to save and invest more–then shielding their early income from taxation is one simple way to kickstart a better future for them, their families, and the country as a whole.