Projected harm reveals federal luxury tax’s warped sense of ‘fair’

Everyday workers, not rich buyers, will shoulder the pain, Williams warned, with both sales and service jobs being lost.

This was the result of a similar luxury tax on boats, planes, jewels, furs and vehicles enacted in the United States in 1990. Small-boat makers were particularly hard hit, with the tax widely blamed for hundreds going under and thousands of layoffs. It was repealed on all items except vehicles in 1993, and phased out for vehicles starting mid-decade.

Boats and planes will also be subject to the Canadian luxury tax, though jewels and furs got a pass. Track-bound race cars; designer handbags; snowmobiles; second, third or 10th homes; all-terrain vehicles; and countless other items that could be considered luxuries without stretching the imagination did too.

There’s also the question of revenue. The luxury tax on vehicles is expected to raise about $125 million a year for government through 2027, PBO estimates show, while costing industry a total of $566 million in sales over the same period. The added revenue for Ottawa is a drop in the bucket for budgets worth more than $400 billion a year, but, and this bears repeating, it means a 19-percent decline in luxury sales.

Staring down a large debt load coming out of the pandemic and facing high wealth inequality compared to historical norms, there are good reasons for Ottawa with explore ways to tax the wealthy more effectively. A luxury tax that ignores all but three products, however, is hardly the “fair” panacea Ottawa is pitching. It will provide negligible help patching up government finances and looks likely to cause real harm to the industries it’s targeting.

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