'We did it the way we intended to': Morneau weathers tax storm of his own making

Like the late, great Tom Petty, he won't back down.

Or, to be more precise, the federal minister of finance has found a very Canadian middle ground:at once standing firm while conceding he needs to make some changes.

The Liberal government has infuriated small business owners from coast to coast to coast with its recent proposed changes to the tax system, but after weeks of blowback, BillMorneau isn't shying away.

He may have been tempted, at times, to close his office door and take a break from being portrayed as a money-grubbing billionaire intent on wrecking the very foundations of Canadian capitalism.

Instead, he's been standing in front of rooms of people yelling at him and submitting to interviews with just about every major news organization in the country. He's made vague promises that the government will backtrack on some of the more contentious proposals. But he's not exactly issuing a mea culpa.

"We did it the way we intended to do it," he told CBC News Thursday."Which was to go out with proposals and get some feedback."

Pipelines and taxes

7 years ago

Duration 15:37

Peter Armstrong speaks with Finance Minister Bill Morneau

Let's parse that a bit.

The Liberals are proposing to close what they consider loopholes in the tax regulations that govern small businesses. There are three main principals at play here:

• Passive investments (or taking company money and investing in long-term stocks or bonds instead of the company itself).
• Capital gains rules around the payment on dividends.
• Income sprinkling (spreading a company'sprofits amongfamily members to lower the tax burden. Even in cases where those family members had nothing to do with the company at all).

The dangers of unintended consequences

Morneausays he wants to make sure the system is fair. He says the ability to sprinkle money to a child who has no involvement in a company makes no sense. And in some instances he may have a point. But the proposal failed to consider the case of the family farm, where just about everyone pitches in and always has.

• Why this 5th-generation farmer is furious with Morneau
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The government wants to make sure passive investment rules aren't being used to save for an individual's retirement. But the proposal has raised all kinds of questions about the ability of a small businessto keep money on hand to invest on even a short-term horizon.

Back to the family farm, the government's plan would make it more expensive to sell the farm to a child than to a third party.

It's those holes in the proposals that have so many people so upset. And in a lot of cases, those unintended consequences have allowed critics to cast doubt on the entire idea of the changes.

Should Morneau have known better?

Remember, Morneauran one of the biggest human resources and pension planning firms in the country. He has the entirety of the breadth and knowledge of the federalFinance Department at his disposal. He knowsas well as anyonethat any changes totaxation are as loaded as they come. And still, those unintended consequences slipped through.

Whenever you change taxes you changethe status quo. And there are people that are invested in the status quo.- Finance Minister Bill Morneau

Hesaidhe expected some of the backlash. But he also insinuatesthe criticisms are just people digging in to protect their own self-interest.

"We knew people would not be entirely happy with all the things we put forward," Morneau said."Because whenever you change taxes you changethe status quo. And there are people that are invested in the status quo."

Then, in the same breath, Morneau saidhe's listened to those who took part in the consultations and that there "need to be things we change."What we don't know is when those changes will be made public (in his defence, the consultation period only ended on Monday).

"I know peoplewant to get to specifics. And we intend on getting to specifics as expeditiously as possible," he said."That was a real consultation period. We had a large number of submissions that we need to consider."

Some have also raised questions about whether Morneau's former company,MorneauShepell, stands to benefit from these changes. He severed all ties with the firmfounded by his father after he won a seat in the 2015 federal election.

• Outrage over tax changes overblown, economist says
• Morneausays wealthy Canadians have unfair advantages

Morneaubristles at the notionhis former company will grow its business by consulting those small businesses impacted by the proposed changes.

"It's absurd," he saidsharply."I'm not in touch with them. It's not my firm. It's a publiclytraded firm and last I heard it was a tiny part of that organization."

The real issue is what happens now. Morneau is clearly committed to pushing these changes through. So just how much will the Liberals back down? And will the storm of anger over the proposals let up at all? It's as much an economic issue as a political one.

By their own omissions, the Liberals have taken a difficult task and made it that much harder.