Making use of a time-honored tradition in government communications, Canada’s Department of Finance last Friday afternoon released its amended proposal for a tax on luxury goods. Outside of tax season, of course, most people don’t visit government websites on the regular. But burying an official release in the wee hours of the working week makes it even less likely anyone will notice something potentially controversial or embarrassing. In this case, the government’s timing is almost certainly owed to a new provision added to the legislation since its initial drafting last year, which reads as follows: “Relief for aircraft is proposed to be expanded to take into account qualifying flights that are conducted in the course of a business with a reasonable expectation of profit.”
It’s a pretty soporific sequence of words, even with more context. But what it appears to mean is that Canada’s governing Liberal Party plans to amend their proposed tax on new luxury cars and aircraft so that private jets used in the course of business can be written off. Revisit the language in the Liberals’ 2021 budget and the more detailed backgrounder published in August, and the word “profit” does not appear. Some possible exemptions to the tax are mentioned, but they mostly have to do with planes imported for use by hospitals, local governments, or police and fire departments.
In other words: in the roughly seven months since the government published its previous version of the legislation, a major carveout has been added that quite visibly opens the door to all kinds of avoidance by wealthy individuals. According to its Friday release, the amended draft “reflect[s], and respond[s] to, input received during consultations with stakeholders,” which very likely means that the owners of private jets agitated for an exemption.
It would hardly be the first time Canada’s wealthy have successfully advocated for obscene carveouts in tax policy. In breaking his promise to close a $750 million stock-option loophole used almost exclusively by CEOs and other executives, former finance minister Bill Morneau claimed he’d received input “from many small firms and innovators” to the effect that “they use stock options as a legitimate form of compensation.” Documents published by PressProgress, however, found that Morneau (himself a wealthy former executive) had been aggressively lobbied by corporate Canada to maintain a loophole used almost exclusively by eight thousand of the country’s wealthiest people.
Canada’s tax system is riddled with absurd exemptions like this. They may be completely indefensible as extensions of the public interest, though they’re also par for the course given the imbalances of power inherent in who lobbies the government and the resources different groups have at their disposal to do so. It’s a clear case of special-interest capture and class bias in policymaking but also a reminder of one of the cardinal flaws in how the liberal state conceives neutrality. On paper at least, liberal states in a representative democracy act as neutral arbiters of the public interest. Sometimes, of course, this requires policy trade-offs or the balancing of competing demands. Regardless, what emerges is supposed to be autonomous from the particularist considerations of one interest group or another.
Even in the case of something entirely noncontroversial such as a luxury-goods or stock-option-compensation tax, however, it quickly becomes obvious that many policies are rarely assembled this way. In the course of policymaking, various “stakeholders” lobby, agitate, and put pressure on the government, but those with the means to do so most effectively are most often monied private actors rather than public interest groups or concerned citizens. Especially when it comes to tax policies or large expenditures, the former generally have an army of lawyers, lobbyists, and PR professionals at their disposal — not to mention considerable influence by virtue of their location in the economy. Except in a few exceptional cases, the latter are unlikely to be able to mobilize anything like the same reach or pressure.
The result, as looks evident here, is often policy with no significant popular buy-in and that no sensible person not being paid to think otherwise could convincingly defend.