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Tory tax credit is a teardown

August 28th, 2015 · No Comments

It’s as though the Conservative Party of Canada is making it up as it goes along. There is very little meat in their policy platform outside of the rhetoric of getting tough on crime, keeping a steady hand on the economy’s tiller, and protecting us from terrorists. The platform plank, the Home Renovation Tax Credit, is something substantial, but it is a bit too tough to chew. This does not represent sound fiscal policy, will result in negligible public good, and is a mere re-election ruse. We see a number of problems with this proposal.

Mr. Harper is offering a permanent tax break for homeowners. Do any work on renovations valued from $1,000 to $5,000 and you get to take 15 per cent of that value off your federal tax obligation. It’s estimated to cost the federal government $1.5 billion a year.

First of all, it’s regressive. Only homeowners are eligible, not renters. It gives money to people who would probably spend it anyhow. It’s consistent with giving money to the Conservatives’ base, homeowners in the suburbs. Arguably it gives their traditional voter base another handout and a reason not to wander at the ballot box. It’s just cementing their constituency, so it’s redeemable at best as a sound re-election strategy.

In the mealy-mouthed announcement, Mr. Harper offered that this tax credit would not take effect, until, as he put it vaguely, “mid-mandate”. And then only if the federal budget is balanced. We should remember that this government has delivered a string of deficit budgets that go back eight years. So, don’t hold your breath that the balanced budget condition will come to fruition. Given that the plan is for delayed gratification, “Re-elect me now and I will give you this (maybe) later”, it could arguably have the opposite effect. “Let’s wait, honey, to reno the kitchen until the tax incentive kicks in.”

Why is Harper not immediately implementing the tax credit? Perhaps that would signal that he acknowledges that we are now in a recession, which, of course, he denies. He also asserts that we are in a balanced budget condition right now. However, the prime minister is increasingly alone in this view. In a July 23 announcement, the Parliamentary Budget Office (PBO) reported, “Using the Bank of Canada’s July projection of real GDP growth, PBO estimates that an updated Budget 2015 outlook would show deficits of $1.5 billion in 2015-16 and $0.1 billion in 2016-17.” So where is this gift money supposed to come from?

Does this sector really need such a boost? Do we really need to be pumping more money into the over-inflated housing sector? According to a July 15 report of the Altus Group, a real estate consultancy, growth in the renovation sector already outpaces the overall economy. In 2015, Canadians spent $68 billion on residential renovations and just $48 billion on new home building. Renovations account for one in five dollars borrowed on home equity lines of credit. Only 25 per cent of the renovations we do are for necessary repair work.

The only plus side is that this measure will help bring the black market into daylight. Homeowners will be demanding receipts in order to apply for the tax credit, and the federal government will get access to information about who is supplying renovation services. According to an Aug. 4 release by the Canadian Home Builders Association’s CEO Kevin Lee, “Tax credits that require homeowners to get receipts also help to protect them from ‘cash’ contractors who leave a trail of bad work and broken promises.”

If this tax credit must go to those who are renovating their houses why not make this more positive? Like home energy reduction (time to replace that 25-year-old refrigerator perhaps?), alternative energy solutions, green building materials, anything at all progressive would contribute more to the greater good.

This plan just blows more smoke into the over-inflated housing bubble, encourages more unhealthy home equity borrowing, and is unabashedly another way for the Conservatives to buy your vote with your own money.

Tags: Annex · Liberty · Editorial