Thank you very much, Mr. Chair.
Good afternoon. Thank you for inviting us here today. My name is Tim Reuss. I'm the president and CEO of the Canadian Automobile Dealers Association. Appearing with me is Huw Williams, CADA's director of public affairs.
I'm here today on behalf of Canada's 3,200 independent franchise new car dealers and our over 160,000 dealership employees, who are concerned about the 10% federal luxury tax on cars that was announced during the recent election and included in the Minister of Finance's mandate letter.
On the surface, a luxury tax sounds like a simple policy tool that will help generate additional government revenue to help reduce the deficit or perhaps to reinvest in services or programs that Canadians rely on. However, examples from both history and the present have shown that luxury and other sin taxes do not work. In fact, they end up punishing consumers, small business owners and employees, and government pocketbooks all at the same time.
In my remarks today, I would like to highlight three areas that would be negatively affected by the luxury tax: jobs in the retail auto sector, reduced government revenues and potential trade impacts.
Let's talk about the one we are most concerned about: jobs in the auto retail sector. To see the evident negative real-life impact that this tax might have on jobs in our sector, you do not have to look far. In 2018, British Columbia raised the provincial sales tax on luxury cars, adding 20% on top of the existing sales tax. The results were that the total luxury auto sales in B.C. reversed gears sharply, decreasing by over 5% in 2018. The luxury segment priced above $100,000 decreased by 16%. This has already had a significant negative impact on jobs, with 43% of our members in that province reporting lower dealer staffing as a consequence.
Second is reduced government revenues. With an introduction of a federal luxury tax, CADA is concerned that consumers will buy around the tax. This includes everything from purchasing a lower-priced vehicle, thereby reducing the amount of HST or GST collected; importing vehicles from other markets; purchasing used vehicles that may have outdated technology with lower fuel economy; or simply forgoing buying a vehicle at all. This is exactly what happened in B.C., with the sales registered in that province negatively affected, as mentioned before, and the foreseen taxation revenues therefore not materializing.
Third is potential trade impacts. The overwhelming majority of all cars sold in Canada over the $100,000 threshold being proposed are European, with nearly 90% comprising German and U.K. brands. The luxury tax may therefore violate the spirit of the recently signed CETA, jeopardize its ratification and lead to retaliation against Canadian products exported to the EU. I would like to remind the committee that the repeal of Australia's luxury tax has been one of the key demands of the EU as it negotiates a free trade agreement with Australia, so this concern is not without precedent.
If the government nevertheless is unequivocally committed to the implementation of the luxury tax, we urge the consideration of the following implementation measures to help alleviate the challenges facing our industry. First is a sequenced introduction approach for the three industries mentioned in the tax proposal, thus granting sufficient time for the automotive sector to adapt its long and complex international supply chains on a more equitable basis. This would also allow our members adequate time to adjust their planning, ordering and inventory levels.
Second is to align with the Canadian income tax bracket logic and assess it as a progressive tax, wherein only the marginal amount over $100,000 is taxed at 10%. In addition to increasing the chances of actually generating additional revenue from this tax, this measure would also eliminate unintended pricing decisions around the proposed threshold.
Third, exempt any electrified vehicles irrespective of price. The latest safety, emissions and battery technologies are expensive and often deployed on the most expensive vehicles first. This allows manufacturers to recoup significant investments for those technologies, which can then be deployed on mainstream vehicles. These more expensive vehicles are already excluded from Canada's iZEV rebate program and would be further penalized if captured by the luxury tax.
Fourth is to support a dialogue with British Columbia to avoid a redundant tax-on-tax-on-tax situation. A further 10% federal luxury tax on top of the existing 20% B.C. luxury tax, in addition to federal and provincial sales tax, will amount to a nearly 40% tax on luxury cars sold in British Columbia.
Thank you for your attention this afternoon.
We'd be happy to take any questions you might have.