If the past is any guarantee of the future, Ottawa will soon realize that its tax on luxury goods – like private jets – is on the wrong track, concludes a new report from the Aerospace Industries Association of Canada (AIAC) released this Thursday and The Press obtained. Better to correct the shot before it is too late, pleads the organization.
Private planes, yachts and cars… The United States opted for the same approach three decades ago. The outcome ? In August 1993, only two years after the measure came into force, we reversed course.
“The argument was the same, that the manufacturers suffered more than the revenue generated by the tax,” underlines the author of the report, Jacques Roy, professor of operations and logistics management at HEC Montréal. The tax looked a lot like what you see here. »
An article from washington post released the year the luxury tax was repealed south of the border reflected the impact on the industry. Between 1er January and June 30, 1992, U.S. authorities collected just US$158,000 from private jet sales through this tax — enough money to run the Department of Agriculture for 15 minutes at the time. .
In return, the Beechcraft company claimed that the luxury tax had deprived it of 80 sales totaling 130 million US – 278 million US in today’s dollars. Overall, Washington had raised US$12.7 million (US$27 million in today’s dollars) in the 18 months since the luxury tax took effect.
The US tax was 10% of the sale price of cars costing more than US$30,000, boats costing more than US$100,000, and aircraft costing more than US$250,000.
Such a tax has been tried in other places and the experiment has failed. This tax will cause the government to lose revenue instead of making it gain.
AIAC President and CEO Mike Mueller
The Association requests that business jets be excluded from the scope of the tax.
long crusade
The AIAC strongly opposes the measure announced in the spring of 2021 by the Trudeau government and which has been in effect since 1er last September. Mueller says the tax will have a “negative and detrimental impact” on an industry that has been seriously shaken by the COVID-19 pandemic.
This “tax on certain luxury goods” targets cars and aircraft that sell for more than $100,000 and yachts that cost more than $250,000. The rate varies between 10 and 20%. According to the report, it has already lost sales of more than half a billion since sales of business jets (Bombardier) and helicopters (Bell Textron Canada) are on hold.
We won’t be announcing mass layoffs tomorrow morning across the country because of the tax. But there will be a shortfall for the industry. This is where the jobs will not be created.
Jacques Roy, Professor of Operations and Logistics Management at HEC Montréal
The average “lost wages” and “lost federal income tax” in the aerospace industry alone will end up being higher than the $140 million to $145 million that must go into the coffers of the state through tax. Over five years, it should allow the Trudeau government to pocket 570 million.
A 10% tax on a Challenger 3500, which has a list price of US$26.7 million, would be at least US$2.7 million. It would reach 7.5 million US for Bombardier’s spearhead, the Global 7500, sold for 75 million US.
Sign that the buyers have been cooled, there is no transaction on the table at the aircraft manufacturer where the new tax should be collected. Bombardier had witnessed a slowdown in demand in the Canadian market.
It’s not just the AIAC that questions the spirit of the luxury tax. Last May, an analysis published by the Parliamentary Budget Officer concluded that the disadvantages would outweigh the advantages. Over a five-year horizon, the measure would reduce car, ship and plane sales by about $3 billion.
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- 34 billion
- Canadian aerospace industry revenues in 2019, before the pandemic
Source: Aerospace Industries Association of Canada