Advisors express concerns about the process and ramifications of latest news from Ottawa
Financial advisors reacted with concern and a degree of nervousness to the potential impact the new federal Liberal-NDP partnership would have on their industry and clients.
The poltical pacts promises a new dental care program for low-income Canadians, progress toward a universal national pharmacare program, and more affordable housing and climate change initiatives, saying it will finance part of that with tax changes on financial institutions that made strong profits during the pandemic.
Jason Pereira, a Financial Planner at Woodgate Financial, chalked the move up to “political theatre”. “So, what does this translate into – in terms of tax revenue? Consider national day-care at $10 a day. Quebec has proven that model is actually net positive tax revenue because it allows people to work. Think about how expensive national health care is, but it keeps us all working, and how valuable is that?” he said.
“We don’t know the details of any of these plans, and we don’t know what the net benefits to society there will be from this. I don’t think basic dental cleaning is going to make or break someone’s ability to work, but pharmacare could absolutely have a massive impact.”
As for taxing financial institutions, he wondered if the government would add a surtax on a couple of types of businesses or create a new dividend category to deal with integration. Or will it break integration, and what are those implications?
“Banks might be better off with share buybacks versus dividend increases going forward,” he said. “So, maybe it’s not a top of mind issue, but, from a tax standpoint, this is a big question. We are completely in a wait-and-see mode until such time as legislation is passed,” said Pereira, noting the dental and pharmacare plans will probably impact group benefits.
“So, employers and a bunch of corporations will save money on benefits and the premiums on these plans are going to drop and that’s going to impact anyone in the group space,” he said. “But, lots of Canadian advisors love buying Canadian banks for the dividends and this puts a headwind behind those, which goes back to my question on integration. If it breaks integration, that means other companies are cheaper outside of those being targeted to issue dividends unless we create a different category of dividends, which just further complicates taxes.”
“Hindsight being 20/20, it’s easy to connect the dots between the election that we had in September to bleed out the campaign coffers of the NDP and put them into financial hardship and having them in a situation where their party is backstopping the federal Liberal government now,” said Arthur Salzer, CEO of Northland Wealth Management. “I think that was well thought out ahead of time.”
Salzer noted the federal Liberals doubled the total federal debt in the last two years after it took 30 years to pay it down. He was also sceptical that many of the promises would amount to anything because, he said, “what governments in Canada tend to do is over promise and under deliver.
“They talk a great game, but nothing’s ever done. The money disappears and that is left for Canadian taxpayers today and in the future to pay,” he added.
Salzer said entrepreneurs and family enterprises he knows say they can’t run a business in this environment because there’s too much uncertainty, so they’re slowly fleeing Canada.
“It’s a trend. I don’t think it’s going to stop. It’s only going to get worse and, as a Canadian and a business owner, I’m very, very concerned,” said Salzer.
As for taxing the financial industry, he said he expects any additional taxes on Canadian banks and insurance companies will be passed on to Canadian consumers. Meanwhile, gas and heating oil taxes could increase, and tax planning could become more critical.
Allan Small, Allan Small Financial Group
Allan Small, Senior Investment Advisor for Allan Small Financial Group with IA Private Wealth, also noted the impact of the new partnership “depends on what they do".
“Are they going to tax the banks? They’ve already talked about that in the past. Are they going to increase the capital gains tax? That would tax all the investors, and when you increase taxes, you take away from the profitability of corporations or individuals, which can impact what they’re doing. If you tax a business, it obviously has to make it up somewhere or it doesn’t hire as many people or give as many bonuses or salary raises. So, some may think this is great, but then you have to find out how the ramifications, especially the unintended consequences, actually affect a lot of people.”
Even once we learn the plans’ details, Small noted “the NDP and Liberals are together, so there’s really not much that anybody else is going to be able to do to stop it. It’s a situation where I think a lot of people are nervous as to what’s going to happen down the road.”