Thank you, Mr. Chair.
It's a pleasure to be here today. Happy Valentine's Day. I hope each of you can share a romantic day with someone special. Like the pre-eminent Professor Arnold, who I'm certainly not in the same league as, what I'm going to talk about today is not very romantic.
Notwithstanding not being in the same league as Professor Arnold, I do have a long history in the tax profession. I'll tell you a bit about myself. I'm former chair of the Canadian Tax Foundation, former co-chair of the Joint Committee on Taxation with the Canadian Bar Association and CPA Canada, and chair of the Society of Trust and Estate Practitioners. I'm also the co-host of Canadian Tax Matters, Canada's leading platform for learning about trending tax issues.
I'm going to keep my remarks rather short today because we're limited to five minutes. I have given each of the members a complete copy of my remarks. I encourage you to look at them for more completeness.
I would like to comment on two things, which are our country's out-of-control spending and deficits, and some suggested tax matters for consideration.
To be clear, I'm not an economist, but you do not need to be highly educated to figure out that you cannot endlessly spend more than you make—whether you're an individual, a business, non-profit, charity, or government—unless you subscribe to the notion that a government can create more money without consequence. This theory has been coined the modern monetary theory of economics. The fact that there are consequences to indefinitely spending more than you make does not change if you cloak the spending in revised phraseology such as “investment”.
With the current state of our country's deficits and debt, with no visible signs of a plan to rein it in, coupled with inflation at 30-year highs nearing 5%, Canada has a serious problem. Too many dollars chasing too few goods results in demand-pull inflation. We're seeing pressures as a result of that.
In the last six years, and particularly in the last two years, we've seen tremendous government spending. In his February 11, 2022, piece entitled “Modern Monetary Trauma”, Douglas Porter, chief economist for BMO, stated the following about the U.S. situation, which is similar to Canada's, but of course not identical. He wrote that, “the massive stimulus package...of early 2021 was a clear case of overkill for an economy already bouncing back. The combination of super-loose monetary and fiscal policy was essentially a de facto experiment of [Modern Monetary Theory]. Well, the results are now in—CPI at 40-year high—and MMT has failed its first test in spectacular fashion.” I totally agree.
Canada has much to learn from this experience. In my opinion, it starts with reining in spending. This is the season where there is no shortage of people asking the government to pump money into their pet projects or preferred areas—in these pre-budget consultation committee meetings in particular. I believe the government needs to rein in spending and tighten up its monetary policies for the benefit of all Canadians. Such loose policies and the lack of a visible plan are contributing to tremendous inflationary pressures, including housing prices. Of course, these pressures negatively impact all Canadians. Frankly, positive, concrete action is needed now.
I'll move on to tax, which is an area that I am much more astute in. I'll keep my comments brief here. In my notes, I've indicated six areas that I think the government should focus on. Some of them are positive, some of them...take a pause.
The first is to not move forward on an anti-flipping housing tax. Overly simplified, the current Income Tax Act has all the tools to attack traders in real estate who try to utilize the principal residence exemption to shelter their profits. With the Canada Revenue Agency making the disclosure of the utilization of the principal residence exemption mandatory on personal income tax returns from 2016 forward, this also gave CRA the tools to identify and audit inappropriate claims. To introduce another tax that arbitrarily denies the utilization of an exemption if a property is sold within 12 months of its acquisition, with limited exceptions, will simply introduce unnecessary complexity. I'm confident that the introduction of this measure will result in no meaningful reduction of PRE claims, and it should be abandoned.
Second is to not increase personal tax rates. I note that the 2021 Liberal election policy platform did not contain an explicit proposal to increase the rates. However, with the need for revenues, I'm concerned that the government may view the so-called “wealthy” as an easy target to pay just a little bit more. Such tax increases would cause even more capital to flee Canada—we're seeing a lot of that through our office—and discourage the best and brightest from staying in or coming to Canada. With skilled labour at a premium, this needs to be avoided.
Number three, do not increase the capital gains inclusion rate. Again, the 2021 Liberal election policy platform did not contain explicit comments regarding this, but previous minister mandate letters mentioned tax expenditure reviews to ensure that the wealthy do not benefit from tax breaks. With the 50% capital gains inclusion rate being a large tax expenditure, many are concerned that this rate could increase in the budget. Such an increase would be devastating to the investment community and the ability for our country to attract capital. Don't do it.
Number four—