Will the Senate stop Liberals’ tax changes?
On December 13, 2017 the Standing Senate Committee on National Finance released its report on the July 2017 tax proposals announced by the Liberal government. Over eight weeks, the Senate committee heard from 138 witnesses and received 32 written briefs.
The evidence heard by the committee identified several significant problems created by the July tax proposals. Witnesses condemned the complexity, ambiguity and uncertainty introduced by these proposals.
Witnesses also condemned the unintended negative impact the proposals will have on Canada’s economy. One witness testified that “these proposed tax changes are a disaster. They will hurt our ability to grow, to create jobs and to invest in our communities.” Another witness described the proposals as a “massive job killer, undermining Canada’s competitiveness and causing less investment, less of a cushion to get us through the economic downturn whenever it comes, less venture capital and less foreign investment.”
A number of physician representatives warned that the proposals could lead to cuts to patient care, hitting rural and northern communities particularly hard. Farmers cautioned that the proposals would negatively impact the ability of family farms to operate as successful businesses, and would put at risk the ability to keep farms within the family.
The bipartisan committee overwhelmingly concluded that “most witnesses told our committee that the proposed changes should be withdrawn in their entirety. Given the strength of their arguments and the extent of the problems identified, we are inclined to agree.” (Bolded in original)
The committee also recommended that the Government of Canada undertake an independent comprehensive review of the tax system with the goal of reducing complexity, ensuring economic competitiveness and enhancing overall fairness.
Finally, the committee criticized the haste and lack of meaningful consultation, recommending that even if the tax proposals are enacted into law, the implementation be delayed until at least January 1, 2019. The committee noted that much of the outrage at the government’s proposals “could have been avoided if it had undertaken a thorough, open consultation based on neutrally stated tax objectives.”
The committee’s report appears to enjoy broad cross-party support in the Senate. What will be the likely effect?
Constitutionally, the Senate plays an indispensable role and its views must be taken into account. Legislation cannot pass without Senate approval. The Senate can also amend legislation sent to it by the House of Commons. However, in practice the Senate tends to act as something of a rubber stamp, particularly where the same party holds a majority in both Houses. Currently, of the currently sitting 94 senators, 52 were appointed by Liberals and only 42 senators were appointed by Conservatives. While it is not uncommon for the Senate to delay legislation that is contentious, and recommend changes, wholesale rejection of legislation is rare.
The general philosophy of many Senators is summarized by the following comments made by Independent Alberta Senator Elaine McCoy, who said back in June of 2017: "We are appointed, we give them our advice, but we do not insist on it unless it's a very, very important matter like going to war, then we'd insist."
Are these tax changes an important enough issue to cause the Senate to stand up to the Liberal government? Only time will tell.
Invitation for Discussion:
If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the tax law group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.