What are the Liberals thinking?

The Liberals must have known changing the tax rules would bring heavy opposition. So why are they doing it?

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Maybe it’s time to take a step back. Discussion over the Liberal government’s proposed tax reform — changes that would effectively stop people from income ‘sprinkling’ and/or discourage incorporation to avoid paying full federal taxes on salaries — is now so far into the weeds, it’s becoming difficult to even know what we’re talking about anymore.

There are reasons for this, and they are mostly political. From an opposition standpoint, anyway, the denser the conversation (that is, the more details there are to absorb), the more talking point arguments appear useful; if you’re just joining the fray, they are at least something you can grab onto for general directional guidance. The same logic applies to the government, too. Often, the more complex the issue, the more simplified the messaging becomes.

Pretty soon, when Parliament sits again, these opposing simplifications will be all we hear — only with the volume increased. So, before that starts, maybe it’s worth wondering how we got here in the first place. I don’t mean to trace the debate back to July, when the reform was first proposed. Let’s aim a little bigger: why was this a decision this government wanted to make at all? Where did this come from? What are we really arguing about?

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Anyone writing about the Liberals (or, in my case, briefly for them) in the last three years has become — as they did with the Conservative line of “strong, stable, Conservative majority government” — exhausted by the endless repetition of “the middle class and those looking to join it.” You could argue that it has devolved into purely rote phrasing, almost to the point of abstraction. But it exists for a reason, it comes from somewhere. And it means something in this debate over tax reform.

Political parties are most effective when they operate with precise vision. The same is often true for governments, though the act of actually governing tends to shift perspective somewhat. I don’t know the current thinking within the Prime Minister’s Office, but my guess is that inequality — or at least, the perception people might have about inequality — weighs, and maybe heavily.

It’s difficult to determine a causal relationship between inequality and institutional trust (in fact, there may be no relationship between inequality and civic engagement, specifically) but a general and observable correlation, appears to exist. That has been particularly the case since 2008 in nations hardest hit by the Great Recession. “Financial crises and consequent economic shocks…not only had huge costs,” Martin Wolf wrote at the Financial Times in June, “they also damaged confidence in — and so the legitimacy of — financial and policymaking elites. These emperors turned out to be naked.”

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Canada arguably fared better than most of its western peers after the recession. Yet, even here, trust is faltering. This year’s Edelman trust survey was the first to show Canadians had become “distrusters” — that is to say, we are less likely to trust our institutions — and that the credibility of academics or government officials is slipping. Is that due to perceived inequality? It’s tough to say, but 55 percent of respondents told Edelman they believe “the system isn’t working,” and a full 80 percent agreed that “the elites who run our institutions are out of touch with regular people.”

But the point is not really that such a thing is necessarily provable beyond doubt; the point is whether a policy agenda operates under that assumption. And it’s possible that a party whose campaign manifesto features among its first words the assertion that, “when our middle class has more money in their pockets to save, invest, and grow the economy, we all benefit,” is indeed operating under such an assumption.

This is why, amid the flurry of comments in defence of the tax reform proposal, Finance Minister Bill Morneau’s remark that to leave the system as-is would be to invite two classes of taxpayers, feels like the most important one. Tired though the lines about the helping the “middle class” may be, if we accept that the convictions that created them are genuine, then we must assume that this tax reform decision is driven not out of disdain for specific professions or even small businesses, but out of a desire to reign in financial divides that exist in our society.

The government is not out to get anyone. Rather, they may feel they are out to help everyone. It’s also why they’re not shying away from this fight: they want — and need — people to know that.

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This is, of course, partly a political choice. There are more voters at the bottom of the pyramid than at its tip, and this is about winning them over. That’s the easy bit to figure out — the votes. Everyone wants votes. But so what? The more relevant question is: Why is it so important to this specific version of the Liberal party at this moment in time that the majority of Canadians see the system being equalized, even to a small degree?

The answer is, perhaps, that they are worried about what might come down the road if that levelling of the playing field does not appear, to the general population, to be happening. Maybe they’re worried about the perceived legitimacy of the system, and of whether emperors are clothed or not. Where will institutional trust rest if they don’t take these steps? Are they willing to bet that it will improve on its own? Is there more of a chance people will see intervention as a positive step or a negative one? Will doing nothing make things better?

Deciding, as it seems they have, the answer to that last question is “no” means they are going to start annoying people. Today, it’s doctors and lawyers; tomorrow it will be someone else. That’s fine, as far as governments are concerned. They think in decades.

The prime minister has been taken to task for his repeated suggestions that a different style of voting system in Canada might lead to the rise of racist populist parties. And yes, it’s an unexpected (maybe even spurious) comment in that conversation, but it’s not all that strange if you assume it is a misplaced expression — that is, that the fear genuinely exists, but it’s just being mentioned in the wrong context.

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I said we should take a step back. I’ll do the same now. In the midst of debate over specific policies, it’s easy to forget that governments are working on a project that reaches beyond the daily, or even weekly, debates. Governments want to actively shape the country, but they may also have to play a defensive game. We might assume in this case that the government has looked around the world and said to itself, ‘let’s make sure some of this doesn’t happen here,’ and, subsequently, looked at ways to fulfill that goal. Tax reform is one. It may be a good decision, or it may not be. Time will tell. But it’s worth knowing why the decision was made.

Or at least why it feels like it was made. This is just a guess.

Relevant disclosure: From September 2014 to November 2015 I was a speechwriter for Justin Trudeau and the Liberal Party. During that period I was a party member. The comments here are my own personal views.


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