By Richard Forbes.
Who could have predicted then that two years after “Sunny Ways, My Friends,” the prime minister and an entourage of ministers and staffers would spend their Monday being driven to a family pizzeria in Stouffville? There Prime Minister Justin Trudeau announced that his government would meet its prior commitment to lowering small business taxes from 10.5% to 9%, in addition to making changes to its controversial tax reform package.
Personally, I’ve found myself feeling less cynical than others about the decision, in part because I never considered the promise to lower small business taxes “broken” – why lower said taxes to 10.5% already if you intended to break the promise ultimately? The government would get no credit for a half-measure. I had long expected closing the loopholes would help finance the rate cuts that the federal government had proposed.
Certainly, the timing of this announcement is most definitely strategic – a knee-jerk response to ailing poll numbers and public backlash – but only the Finance department would know if cutting the small business tax rate further was in the works for the upcoming budget. It stands to reason the announcement may have been expedited, rather than purely improvised. I also disagree with suggestions that the government would have coupled its tax changes proposal with a small business tax cut from the onset; tactically, such a move would leave the government with even less levers at its disposal to temper pushback from small business groups having given away one of its greatest concessions preemptively.
With a Forum poll in September suggesting the Liberals’ hopes for re-election may be in jeopardy, a baptism of fire was lit under Finance minister Bill Morneau’s feet to respond to allegations of conflict of interests and counter the heated resistance his tax changes were receiving from various quarters of the business community. His performance at yesterday’s presser – dismissing questions regarding his personal wealth as a “distraction,” perhaps most jarring of all – displayed Morneau’s political naiveté; a newcomer to politics, Morneau is likely one of the least politically experienced finance ministers in Canadian history, alongside his predecessor, Joe Oliver. Whereas, Canadians for the past twenty years have come to expect only seasoned political operators from the Finance portfolio: Jim Flaherty, Paul Martin, Ralph Goodale and John Manley.
A closer analysis of those Forum polls from August and September, reveals that the vast majority of the shift from the Liberals to the Conservatives is occurring at the highest income bracket polled (>$100K.) Predictably, this falls in line with the current tax changes debate since households making over $100K are the most likely to be affected by the proposed tax changes regarding income sprinkling and the conversion of capital gains. Below, the difference between the two polls has been presented as a share of the electorate; so, for example, although the Tories have received a twenty point boost in the polls among respondents in the $100K bracket, the relative size of said bracket as a share of the electorate is much smaller, registering instead as a four point bump overall:
The real question that remains is to what extent the ‘well-to-do’ now fleeing the Trudeau Liberals actually contributed to the Liberals’ win in 2015?
Forum polls at that time did not survey household income unfortunately (making a direct comparison impossible), but there’s still an argument to be made that the Trudeau Liberals won without strong support among the wealthiest comparatively. Rather, Canada’s wealthiest households may have constituted the bulk of Trudeau’s “honeymoon” numbers after his win – numbers which are now softening. The federal election’s results certainly make that case, at least. If you compare Canada’s 338 ridings by median total income (male) using the 2016 Census versus the share of the vote each party received in said ridings, as depicted below; the Conservatives can be found to have a moderate positive correction between income and support and the Liberals, a negative correlation. Median total income for women, interestingly, bore no such tangible correlation either which way at all.
The leftward skew for the Tories and the rightward skew for the Liberals represents contrasts in median income in either direction.
Bearing this in mind, the real shift in the polls these past couple of months that the Liberals ought to be concerned about is the salient – albeit less dramatic – +4% loss in support among the electorate attributed to households earning below $100K, especially among the $40-60K crowd, with whom small shifts result in major losses and dividends for all political parties. It appears as though the proposed tax changes, although not directly affecting many in the working and middle classes, was a source of apprehension over the kind of tax environment that the Liberals were putting in place for small businesses; caught in a communications battle with influential representatives of incorporated businesses, the federal government wasn’t able to communicate its plan effectively to voters in the blue-colour classes with regards to who benefits from the closure of tax loopholes.
Given the risks they took in defining their political mandate by class, one ought to have predicted setbacks and challenges ahead for the Liberals in pursuing their fiscal agenda. And yet, the softening of their numbers on this issue still comes as a surprise, perhaps because the Liberals’ tax plan had been such a prominent and successful component of their campaign in 2015. It’s a migration of votes that calls into question the depth of class conscience among Canadians: whether that is, the calls to “tax the wealthiest” widely resonated or rather, reflected a sentiment shared only on a superficial level.
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The Ribbon 