It’s always risky to try to predict with any confidence what a political party will do if it wins an election. I’m old enough to remember when Justin Trudeau promised that 2015 would be the last Canadian election using the first-past-the-post electoral system; after the Liberals took power, of course, they decided that they preferred the status quo. So — shocker — sometimes politicians break their promises. But there’s precious little evidence for the Conservative Party’s recent claim that the Liberals have a secret plan to tax your home for its capital gains.
The background: late last year, the federal Liberals conducted a variety of town-hall meetings to identify issues important in their ridings and to their members. In November 2018, as part of that process, Spadina–Fort York MP Adam Vaughan wrote a policy proposal outlining one possible way to combat housing speculation — a serious concern in the hot GTA housing market.
The idea is simple: attack speculators seeking windfall profits on short-term home resales — “flippers,” as normal viewers of HGTV would call them — by taxing the capital gains on principal residences that currently go untaxed. In Vaughan’s proposal, the highest taxes would be paid by those selling after only a year of ownership; taxes would rapidly decline for people who own the house for longer periods. After five years of ownership, the tax would be only 5 per cent.
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It’s important to note that Vaughan’s paper never went anywhere. It’s not a part of the housing platform the Liberal party has announced this election, the party explicitly disavows the idea, and, since the idea is politically suicidal, there’s no reason to think they’re fibbing on this one. The evidence we have before us clearly indicates that the Conservative claim that the Liberals are planning to do this is false.
Which is a shame, because, while I’d be inclined to tweak some of the details, it’s a good idea.
We can argue about how important a role speculators are playing in Toronto’s housing crisis — I can argue either side, depending on the day — but it’s not zero, and it’s not helpful. Flippers frequently add little actual value to the housing stock, but they’ve helped drive up the cost of housing to the point that home ownership is a distant dream for most young families.
A capital-gains tax — which involves counting the sale price of your home, minus the price you paid when you bought it, as income — is a simple way to attack the problem. First of all, we don’t have to reinvent the wheel: properties can already be taxed for their capital gains if they aren’t “primary residences.” And all purpose-built rental properties can be taxed for their capital gains when sold, so, if you’re a tenant, your home is already subject to a capital-gains tax.
Secondly, the capital-gains tax can be tailored such that it targets the most harmful forms of speculation while leaving normal homeowners alone. Under Vaughan’s proposal, the vast majority of families would pay next to nothing, because they own their homes for more than five years. It’s entirely possible to make it actually nothing — a zero tax after five years, or whatever length of time we decide separates speculation from legitimate ownership.
As with the carbon tax, the point isn’t to raise revenue (though, also like the carbon tax, it would naturally raise some). The point is to discourage the most useless, costliest forms of speculation that are hurting the housing market. The fact that it’s comparable to that most hated Liberal policy is no doubt another knock against it in conservative eyes. But the comparison extends further: whether Ottawa does something or not, other jurisdictions (municipalities, provinces) will be left trying to deal with the housing-affordability crisis. In the absence of a direct federal constraint on speculation, their measures — either provincial taxes or municipal-planning controls — could be less effective and potentially more costly to the economy.
But if none of that convinces Conservatives, maybe one last point will. It’s simply not the case that treating the paper wealth in homes as inviolable helps keeps taxes low and the government small. In recent memory, the stars of Canadian politics have aligned to increase taxes on working- and middle-class people, in part because housing wealth is considered untouchable. When the Ontario Liberals began agitating for an expansion of public pensions in 2014 — the Liberal-proposed Ontario Retirement Pension Plan became an expanded Canada Pension Plan after the 2015 federal election — part of the rationale was that more and more seniors wouldn’t be able to “maintain their standard of living” in retirement.
On closer scrutiny, what this tended to mean was that think tanks were building models based on the assumption that retiring seniors would be unable to access their housing wealth without lowering their standard of living. This is pernicious for a bunch of reasons (is it really unthinkable to ask empty-nest baby boomers to downsize from a three-bedroom home?), but, for small-government types, the thing to note is that being unable to talk sensibly about housing wealth let progressives win the day. They got expanded public pensions — and the payroll-tax increases to pay for them.
None of this is relevant in this election because, again, the Liberals aren’t actually proposing to tax the capital gains in people’s homes. It would be nice to have a real debate about a pressing matter of public policy, but that’s something the parties don’t seem very interested in doing. October 22 can’t come soon enough.