Throw another minister on the bonfire: the ballad of Bill Morneau - Macleans.ca
 

Throw another minister on the bonfire: the ballad of Bill Morneau

Paul Wells on the finance minister’s tax reform flub, and why it’s becoming an embarrassing pattern for the Trudeau government


 
Federal Finance Minister Bill Morneau, left, with Prime Minister Justin Trudeau (Jake Wright/CP)

Federal Finance Minister Bill Morneau, left, with Prime Minister Justin Trudeau (Jake Wright/CP)

In retrospect, it will be seen as fitting that Finance Minister Bill Morneau started working on the second draft of his planned overhaul of corporate taxation during the 2017 Thanksgiving weekend.

First, because Thanksgiving is often used for cutting up turkeys. And it’s becoming clear that Morneau’s project, a bigger political gobbler than the Liberals ever imagined, is in for a close encounter with a carving board.

Already last week, and again in an interview broadcast over the weekend, the finance minister was spelling out five “principles” for fixing his reform—principles that convey marked overtones of contrition:

• Support small businesses.
• Keep small business taxes low while supporting owners who invest and create jobs.
• Avoid creating unnecessary red tape for small businesses.
• Recognize the importance of family farms, and ensure tax changes do not affect the transfer of family businesses to the next generation.
• Ensure any changes to the tax system promote gender equity.

Note that Morneau’s “principles” consist of three declarations of obeisance to small business; half of a fourth to family farms; the other half to family businesses; and that on the fifth principle, the Liberals find themselves playing defence on gender equity, an issue they must have thought they owned outright until they were accused by interest groups of lowering the glass ceiling over the heads of women entrepreneurs.

WATCH MORE: Morneau continues to defend controversial tax proposals

We’ll know for sure when Morneau announces the second draft of his tax reform, but I have a hard time reading this list as anything more than the beginning of a concerted effort to calm some deeply ticked-off segments of Canadian society. If you feel a need to offer belts, suspenders and velcro strips to “small business,” it’s because you have noticed that the gods of small business are not happy. Already, this tax reform has not gone the way the Liberals hoped.

READ MORE: Can Justin Trudeau get big things built?

Something else happened over the long weekend that can help explain why. On Monday the Nobel Prize for economics went to Richard Thaler, whose advances in “behavioural economics” help explain why individuals don’t always behave as rational actors. Thaler won for a wide range of work, but some of it has to do with the “endowment effect,” by which people put a much higher value on something they have in hand than they would have been willing to pay to acquire it.

The experiments Thaler and his colleagues, including fellow Nobel laureate Daniel Kahneman, describe in the paper I just linked are so fun they’re worth your time. In one, half the students in an experimental group were given crappy logo mugs from the university bookstore, and then a bidding market was opened among students. The students with the mugs priced them way above their market value; the ones without mugs offered less than the market price. Very few mugs changed hands, because almost the only people who wanted a mug were the ones who’d just been handed a mug at random.

This all suggests, the authors wrote in that 1991 paper, that “individuals have a strong tendency to remain at the status quo, because the disadvantages of leaving it loom larger than advantages.” That should have rung some bells in the Finance department this summer. A major premise of Morneau’s reform is that the rate of incorporation for tax purposes has more than doubled in recent years. The assumption that went along with that premise was that these recent gains could be easily rolled back. But that’s asking a lot of human nature: You’ve only recently figured out how to save thousands of dollars on your taxes, so we’re hoping you won’t mind being made to unlearn how to do it.

Morneau and Justin Trudeau are learning the power of the endowment effect. It’s got to sting, because as Conservative finance critic Pierre Poilievre reminds them every chance he gets, those two should know something about endowments.

Supporters of the Morneau reform proposal have a few more days to defend them on their merits before the minister cuts his losses. Morneau will then join two other inexperienced Trudeau ministers who piloted major reforms right into the nearest hillside. This is becoming a pattern. The first was Maryam Monsef—remember her? I’m told she’s still in the cabinet—who spent a year and a half trying to find a method of electoral reform that both the Liberals’ opponents and their leader could stomach. She had round tables, a coast-to-coast consultation tour, a special parliamentary committee, a mail-out pamphlet thing, and a dozen other techniques for finding the pulse of the people on electoral reform. Only it turned out the people didn’t have a pulse, and to the extent it could be resuscitated, most people wanted proportional representation, which Trudeau didn’t. So that was the end of that.

Up next was Bardish Chagger, who produced a discussion paper on parliamentary reform, didn’t like most of what she heard in the discussion, and withdrew nearly the whole project two months later.

The similarities among these three reform attempts are striking. First, the government launches a major reform with a set of proposals that would, if implemented, certainly create winners and losers. This galvanizes the potential losers; potential winners are less excited, because the uncertainty in the Liberals’ project—it’s only a discussion paper! Nothing’s written in stone!—is more demobilizing to people facing hypothetical gains than to people facing hypothetical losses.

There follows an extended period during which the Liberals are astonished to find themselves swarmed by detractors. The detractors are organized, numerous, networked, agile and full of surprises. The Liberals are none of these things.

In fact, the Liberals are less agile today than they were in November of 2015. First, because the few Liberals with real-world experience and a contrarian bent (John McCallum, Stéphane Dion) have been whisked off to their reward outside Ottawa. Those who remain are rookie MPs thrust into fancy-sounding jobs before they’ve even learned how to project their voices in the House of Commons. They’re surrounded by legions of rookie staffers who are assigned to populate the rookie ministers’ social-media accounts with gigabytes of flattering photos and nonstop cheerleading about what a progressive, green, innovative bunch of things they’re doing for the middle class! and those working! hard! to join it.

Second, because these under-experienced, over-flattered rookies have been thrust into combat without even being permitted to do combat. These are consultations, after all, so heaven forbid the ministers defend their projects in detail while their opponents are swarming them. Monsef, Chagger and Morneau were instead restricted to bland scripted generalizations that left each, in turn, sounding either deaf or arrogant. Sorry, ministers, but the proper answer to “Why are you doing this specific thing?” isn’t “Our government believes in delivering results for the middle class! and those working! hard! to join it.”

It’s striking how consistently the Liberals absent themselves from national conversations they started. Most of Morneau’s tour on the tax changes was held at venues from which reporters were barred; when they were allowed in, they saw a minister who simply refused to address many of the specific questions that were put to him. This was familiar to anyone who saw Chagger pursue her doomed reform, which was familiar to anyone who saw Monsef pursue her doomed reform. It’s almost like there’s a design flaw.

This isn’t how conversations go. In a conversation, you say something, and then I respond with something that acknowledges what you just said, tries to incorporate part of it, takes issue with another part. In a Trudeau Liberal conversation, a minister spends months saying the same thing, and then a large machine behind the curtain spits up a new project that has very little to do with the project the minister just spent months defending. The good news is that the economy’s going well, because in most other ways this is a strange way to run a parliamentary democracy.

MORE ABOUT JUSTIN TRUDEAU:


 

Throw another minister on the bonfire: the ballad of Bill Morneau

  1. LOL I figured this would be your column.

  2. The first mainstream media piece that just barely begins to scratch the surface of the question of why Trudeau and all of his ministers channel Paul Calandra whenever they answer a question.

    Trudeau and his ministers never respond to and answer a question. Absolutely never.

  3. I, for one, don’t see a reason for the liberals to change course. As long as their opponents are Mr. Scheer and Mr. Singh, they can get away with murder. Political beneficiary is, of course Quebec. If THEY ratchet up the noise, the liberal party has a proven strategy, arsenal and experience in dealing with it (sponsorship?). I foresee a larger liberal majority next election unless something drastic happens with the conservatives, NDP or the electorate. Neither of which is likely…

  4. One thing i have noticed lately is, the conservative party of Canada twitter trolls and attack dogs are no longer hurling insults at the MSM and CBC, or even Paul Wells like they were, calling the MSM nothing but a of bunch liberal latte lover drinkers, for always writing puff pieces about the liberal party and Trudeau, well it seem the cons are getting their daily serving of the anger(MSM loves anger too, it sells more news), that they love to traffic in daily, in the papers and airwaves. Now the shoe is on the other foot conservatives, you’re getting your pound of flesh and some. Their has been an all out assault on liberal party for its misconbobulated(confused,bewildered and scatter-brained) communications in a few of their departments(time for the grits to clean this mess up). See i even hurled an insult at the liberals. if you have bad news to put out Grits, put it out before the opposition takes control of your narrative. This is only a bump in the road for the liberals, kind of like pricking your finger, you shed a little blood, but it will definitely heal.

    • i just like to make one last point to the liberals. Stop making yourselves look like the Steven Harper Government, your not quit there yet, but if this kind of communication keeps up, you will start to look like clones, and not just clowns.

    • This is not true. Most of the mainstream media is still fully onboard Team Trudeau. They are still channelling the PMO’s narratives. When the policies are awful, the PMO and the media say it is just a communication problem. The media doesn’t show the Calandra-speak answers of Trudeau and all of his ministers. They try fixing the story for them. The media is being dragged kicking and screaming by the ordinary people protesting intelligently from the Trudeau storytellers.

      • I have to somewhat disagree with you Carpet Bomber. The media is still largely and enthusiastically on board the Justin Fan Wagon. However, there are random thumps in the existential ether that are the sound of another Canadian journalist falling off that particular wagon.
        The bottom line is that a leader cannot be as dumb as Trudeau, day in and day, month in and month out, without people finally cluing in. For others, it happens when one more Trudeau-ism reminds them that his first religion was Marxism, and another set of dots connects.

  5. I think that Mr. Wells’ argument is that the government’s problem goes far beyond just poor communications strategy. Rather, the Liberals appear to be suffering from ministerial inexperience, bordering on incompetence. Guess what ? Being a good politician is not easy. And, as in most other things, the more experience you have doing it, usually the better you are at it. As Wells points out, a number of Trudeau’s rooky ministers have performed poorly. Their performance might also stem from a number of their platform promises, which might sound good on the campaign trail but which often are more difficult to implement.

    • He also touches on the underlying issue of statism that infests the Trudeau Liberals, but just barely. Having correctly predicted, on this site, Trudeau’s glowing elegy for the deceased Fidel Castro, I can say with confidence that the biggest problem (for Canadians) is Trudeau’s hamfisted desire to grow the power and reach of the state. Justin was raised to believe that all that is good in society only flows from a benevolent state, and that only the state is the source of what is good and benevolent. The problems we’ve seen are only going to get worse, and they’ll get uglier, too. Remember, the only leadership bar he really has to get over, in his mind, is the one set by Fidel.

      • Bill Greenwood you are so correct the liberal party doctrine is straight out of the Marxist playbook. Silence the masses through legislation such as motion 103, make all dependent on the state, tax the middle class to pay for said strategy.

        • And now we learn that Morneau has failed to put his assets in a blind trust. This is just more evidence that the Libranos are corrupt to the very core. They have no ethics. The only reasonable solution is to burn the party right to the ground.
          The only thing more dangerous than a regular Marxist is a Marxist born of wealth, because that kind of Marxist has never lived a life of consequence. That’s Justin Trudeau right there. He’s a Marxist who’s been told he’s above us all his entire life. Bill Morneau is the proof.

  6. I’ve been wondering why the representatives of the hourly paid workers whose taxes are deducted at source didn’t come through in favour of the changes.
    Obviously the government thought this group was paying an unfairly high share of the overall tax burden compared to the incorporated class.
    Why did the NDP stay silent?
    Meanwhile the powerful Ottawa based business organizations, chambers of commerce, and professional associations joined the Ottawa media class and the Conservative Party in a full court press against the changes.
    The Ottawa lobbyists, strategy experts, public relation firms, media advisors were running full out.
    The relatively political inexperienced Morneau never had a chance. But you have to ask why the Liberals didn’t line up some backers before they launched.
    I wonder what the proportion of journalists and pundits are salaried employees versus incorporated freelancers?
    I enjoy watching the CBC and CTV panel discussions featuring experts who are employed by the same PR and lobby companies who are leading the charge and coordinating the attack of the special interests lined up to destroy this initiative.
    Paul seems to lay the blame on the government, buy maybe he should give more credit to the opposition which was wide ranging and well coordinated facing a team from hourly workers which never showed up for the game.

    • The federal government did an *absolutely lousy* job of selling the proposed changes. As for giving credit to the opposition forces, the federal government should have anticipated the opposition that would appear and have had in place counter-measures ready to be deployed. As someone who is in favour of the changes, I can only shake my head at how the government turned what should have been a very winnable battle into a total ****-up. My one hope is that the government takes a stand on the issue and makes only sensible changes (e.g. intergenerational family farm transfers).

      • Why did the unions, NDP, and tradesmen associations, women’s groups cave?
        Of course pretty much same battle, same lineiups on min wage issue.

    • The hourly wage workers whose taxes are being deducted at source were smart enough to know that Trudeau was coming for them next. The CRA is going to tax employee discounts. Trudeau and Morneau want to nickel and dime the minimum wage crowd too.

      The global elites though get their guaranteed profits with the privatization bank and all risk transferred to the taxpayer. The rich will still get subsidies for their solar powered homes and their Teslas ( but employee discounts for the working poor will be taxed).

  7. So … is taxing employee discounts part of the federal liberals plan to support the middle class?

    • The employee benefits (medical and life insurance premiums) of upper middle class civil servants are however free from taxation.

      Trudeau’s government paid nannies untaxed.

      His cabinet members moving allowances from Toronto to Ottawa, untaxed.

  8. Mr. Morneau is the most successful Liberal business person and was Finance Minister basically by default.

    His business success was all in Human Resources and a good portion of it for federal government and almost all of it driven by federal regulations forcing businesses to meet HR standards.

    HR is a cost centre not a profit centre.

    It shows in Mr. Morneau’s total lack of acumen in how business actually works and creates jobs and pays for it’s HR resources (overhead).

    Paul Martin, John Manley, John Flaherty, Joe Oliver all had extensive back grounds that understood profit centres.

    In the back room the people pulling the strings of power…. Gerald Butts has no experience in business,

  9. Sounds more like tyrants applying draconian financial measures. If they’re prepared to tax lowly Canadians slaved employees’ discounts, who could believe they won’t go ahead and surtax small businesses contrary to what they’ve been lying about? Dangerous people running the show!

  10. What is missing from this analysis is that these people are not only political rookies, but by and large, rookies at life – whether trust fund kids, activists, etc… very few have any real experience being what they hope to govern – middle class. Neither Morneau nor trudeau have built a business, worried about how to pay the bills, or (lets be honest) how they will pay the taxes and keep the lights on – and that’s why they don’t get it.

    • Bingo. Trudeau’s front line is largely composed of people who have never had to juggle income and outflow. They’ve never had to tamp down their wishes to match the reality of their earnings. Most have lived their lives with a very substantial safety net beneath them that they did not have to go to the trouble of earning.
      They are thus unable to grasp why Canadians might object to thousands in taxation in exchange for hundreds in security.

  11. Paul could have also mentioned M103 which is heading in the same direction as the others in his article. Another interesting observation re: Monsef is that by exempting her from the same fate as others that enter Canada under false pretences (even if they as children knew nothing about it), they have set a precedent where anyone else that is facing deportation under similar circumstances will be able to use that precedent as a defence.

  12. The one thing the French did in their history far better than the English, was when the Elites started screwing over the citizens to maintain their extravagant lifestyles (Aga Khan, really?) the citizens starting building guillotines in public squares and using them until there wasn’t an elite or an aristocrat left who could walk through one of those squares without a nervous twitch. The problem with the current government can be traced to the fact that we don’t have any guillotines in our public squares.

  13. At least the infrastructure bank , where private money will pay for public infrastructure, is well understood and working….. lol

    • The infrastructure bank sounds like a scheme thought up by the Rizzuto crime family. Everyone wins…. except taxpayers!!

      • Just as the entire Adscam played out like a textbook racketeering scheme, right down to the list of major players looking like the cast list from a Martin Scorsese film.

  14. On the subject of electoral reform, it is not true that most Canadians preferred party proportional voting systems during last year’s review process. The vast majority of us (according to most polls, including the Liberal own consultation) are perfectly happy with the existing First Past the Post system. Facebook Group: FPTP … It Works for Canada.

    On the subject of tax reform, the system is also working well. The government put forward a bill to correct tax provisions which most Canadians think unfairly benefit rich folks and are not are not available to us. Problems with the legislation have been identified and will be corrected.

    • I think it was the Conservative uncompromising demand for a referendum that killed electoral reform.

      • The Liberal government had no intention of adopting any voting system other than ranked balloting. That’s what killed electoral reform IMO.

        • Absolutely!

  15. Rather than trying to remove some neoplasms from the Tax Act, Morneau should have waited another year and simplified the whole thing. It has 40 years of hull accretions and it is no longer ‘fair’ to all. It’s a massive ‘judgement call’, apparently, for anybody looking to make a ‘good idea’ bonus.