Good morning, Mr. Chair, members of the committee and ladies and gentlemen.
My name is Sara Anghel and I'm president of the National Marine Manufacturers Association Canada. I'm here to express the recreational boating industry's concerns with the proposed luxury tax on boats valued above $250,000.
The boating industry has a GDP impact of $5.6 billion. It has $10 billion in revenue and employs more than 75,000 Canadians in the core of the industry. Our industry has faced many headwinds since the start of the pandemic. Supply chain disruptions, production delays and inflation have affected our members. Tourism and recreational businesses were closed for months due to the pandemic restrictions and border closures. On top of that, we are now facing an impending luxury tax on boats.
Our industry understands the government's need to raise revenue in the wake of the pandemic. The luxury tax is not the way to achieve this. The history of luxury taxes shows that consumers will simply choose to take their discretionary spending elsewhere. That is what dealers and manufacturers are hearing from customers. The result will inevitably be a dip in revenue and hundreds or even thousands of job losses across the country.
According to an economic impact study by economist Dr. Jack Mintz in partnership with Ernst & Young, the proposed tax would result in a minimum $90-million decrease in revenues for boat dealers and potential job losses of at least 900 full-time equivalent employees. In short, the tax will hurt the very middle-class families the government is trying to help.
The problem with this kind of tax is that it can easily be avoided by consumers either buying other goods or purchasing and keeping their boats abroad, in Florida or Seattle, for example. They may bring a boat into Vancouver for the day, but keep it stateside.
The expected drop in sales will significantly impact the bottom line of many manufacturers and dealers, which will then be forced to scale back their operations and staffing levels. While we saw a boom in boat sales during the pandemic, the supply chain disruption has been very difficult for our industry. In fact, dealers are expecting a significant drop in sales due to material shortages. Ontario dealer Crate's Lake Country Boats in Orillia expects a drop of 70% in sales by the end of 2022. That doesn't account for what will happen once the luxury tax is in place.
The tax also threatens the survival of Canada's domestic boat manufacturing base, which has already been hollowed out by years of competition from low-cost jurisdictions and offshoring for many. For some yacht builders, such as Neptunus Yachts in St. Catharines, Canadian sales have been the foundation of their business for 30 years. Neptunus Yachts expects to see these Canadian sales drop to virtually zero.
We can also expect a ripple effect of job losses at marinas and service shops. Fewer new boats sold means less work for the marina service industry, much of which is concentrated in rural and coastal communities.
In the early 1990s, the U.S. introduced a similar tax on boats that devastated the industry. It was eventually repealed following the loss of thousands of jobs and a net revenue loss for the government. New Zealand, Italy, Norway, Turkey and Spain have also previously introduced a luxury tax on boats. In each of these cases, the tax was ultimately repealed due to the net negative economic effects. There is no reason to think the same will not happen here in Canada.
We are also troubled by the singling out of recreational boats and not other recreational products. Boating is a cherished pastime for millions of middle-class Canadian families. In this unaffordable recreational property market, many families choose to purchase a boat valued above $250,000 as their cottage.
At a time when governments are trying to attract investment and rebuild our economy, a tax that guts homegrown manufacturing and retail businesses makes no sense. Instead of supporting our industry as a vital part of Canada’s recovery, this tax is picking winners and losers in outdoor recreation.
The luxury tax also has the potential to damage Canada’s trade relations. Concerns have been raised by the boating industry in the United States that this tax directly attacks our Canada-U.S.-Mexico agreement. Similarly, our trading partnership with the U.K. and the European Union could be hurt by what many see as an indirect tariff on boats.
Finally, I saw this morning that the PBO has released a new report on the tax and projects a $2.9-billion loss in sales and that 75% of that loss will come from boats. This is what our industry has been trying to communicate to the government—that this tax will destroy the industry and cause job losses across the country.
Thank you very much for the time to speak to you today.