Walkom: The political necessity of Morneau’s tax reform plan

Justin Trudeau’s agenda has stalled. On issues ranging from peacekeeping to climate change, the prime minister’s Liberal government is treading water. It needs to show it can get more done.

Hence the government’s stubborn insistence on pushing ahead with Finance Minister Bill Morneau’s modest – albeit controversial – tax reform plans.

In the first months following its election two years ago, the Trudeau government was a whirlwind of activity. It negotiated a health accord with all of the provinces and a climate change accord with most of them.

It outlined bold plans to recast the relationship between Ottawa and Indigenous peoples. It promised a return to United Nations peacekeeping.

It began work on so-called democratic reform plans designed to revolutionize the system for electing MPs.

It completed talks, begun by the previous Conservative government, for a comprehensive economic and trade pact with the European Union.

It expanded Canada’s on-the-ground military role in the war against Daesh.

It shifted some of the tax burden from the rich to the not-quite-so-rich and replaced a universal child benefit system with one based on income.

It expanded the Canada Pension Plan and rolled back Conservative measures that had raised the age of eligibility for Old Age Security.

As all of this was going on, the American public chose to elect Donald Trump president – a decision that put the North American Free Trade Agreement between Canada, the U.S. and Mexico in jeopardy and forced Ottawa to reorder its priorities.

The new Trudeau government was busy.

But not all of that hustle and bustle translated into action.

The democratic reform plans were summarily dropped. The oft-promised UN peacekeeping role has still not yet materialized.

Experts say that the centrepiece of the climate change accord – a national carbon tax – won’t be enough to let Canada reach its promised emission reduction targets.

In any case, those promised targets aren’t enough to forestall global warming.

Trudeau’s vision of a grand bargain between fossil-fuel proponents and foes that would give “social licence” to crucial oil pipelines has foundered on the reality of politics in British Columbia and Quebec.

In these two provinces, essential for any pipeline aimed at bringing Alberta heavy oil to the Canadian sea coast, it seems there is no social licence to be had.

Meanwhile, Trudeau’s ambitious Indigenous agenda has ground to a halt as the new government comes face to face with the complexity of the issues at hand.

Ottawa’s response, a massive bureaucratic reorganization, may be useful in the long run. But it is unlikely to provide quick relief.

For a government getting ready to face the electorate in two years, this is a problem. Trudeau needs to demonstrate that he still has the chops.

In particular, he needs a success to burnish his claim that this government is committed to helping the middle class.

For Trudeau, tax reform is the necessary adjunct to free trade. As he said once to the Star editorial board, liberalized trade may create wealth but it does so unevenly. The trick is to share the gains from globalization more equitably. The mechanism for doing this is tax reform.

Which is why the Liberals promised, in their 2015 election platform, to take aim at tax breaks that favour the rich.

They have already broken one campaign pledge – to eliminate tax breaks for corporate executives paid in the form of stock options. They need something in its stead.

Morneau could have opted for comprehensive tax reform. He could have taken aim at the entire panoply of breaks written into the income tax act.

Wisely perhaps, he didn’t. Allan MacEachen, the last finance minister who tried that gambit, raised such an outcry from enraged special interest groups that he was forced to beat an ignominious retreat.

By contrast, Morneau is trying to limit his enemies to just one category – well-heeled professionals who incorporate themselves as small businesses simply to pay less income tax.

Even this is politically dangerous. But for a government desperate to present itself as the tribune of the middle class, it is also politically necessary.

Thomas Walkom is a national affairs writer.

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