Trudeau welcomes dissent as Liberal MPs criticize government’s tax plan

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Prime Minister Justin Trudeau said he welcomes the fact that some Liberal MPs are speaking out against the government's handling of small-business tax reforms, which he said is part of the consultation process.

Mr. Trudeau's comments come as another Liberal MP criticized the measures, stating that he will not be able to support them in their current form.

The federal Liberal cabinet is meeting this week in St. John's to prepare for Monday's return of Parliament and the second half of the government's mandate. Mr. Trudeau said the latest proposals related to small-business rules are part of the government's campaign promise to raise taxes on high-income Canadians in order to provide more benefits for low-income and middle-class Canadians.

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Some Liberal MPs are challenging that message, siding with small-business owners who warn the changes will have a much broader impact and will harm the economy.

"As for caucus, folks know that I embrace diversity," Mr. Trudeau told reporters when asked if there would be negative consequences for his MPs who speak out. "I am proud that our caucus has a broad range of views and perspectives about the best way to move forward things. It's one of the strengths of the Liberal party and I encourage a broad range of voices speaking up within the Liberal party."

Liberal MP Wayne Easter, who chairs the House of Commons finance committee, told The Globe and Mail earlier this week that he felt the government's approach to communicating the tax changes was "god awful."

On Wednesday, another Liberal MP told The Globe and Mail that he will not vote for the package unless amendments are made.

"I will not support the proposals," said Wayne Long, who represents the New Brunswick riding of Saint John-Rothesay and previously ran a seafood business. "With me, it's personal. I was a small-business person … and I absolutely believe that these changes will have a negative impact on entrepreneurship, on the spirit of entrepreneurship and on the development of small businesses in Canada, which are the backbone of our economy."

Mr. Long, who first announced his position on Facebook, said that while it is difficult to speak out against his own government on an issue, he believes the party will support MPs who express the will of their constituents.

"Is it awkward for me? Absolutely. As a backbench MP, does it put me offside with the party? I'm sure it does, but I'm coming at this with a position of love and respect for my party," he said. "We were elected to represent our regions and our ridings and my riding is screaming loudly and clearly that these changes will have an impact on the riding and I support that."

The proposed changes fall into three main categories. One would limit the ability of a business owner to "sprinkle" income to family members who do not work directly for the business. Another change would restrict the ability to convert income into capital gains as a way of paying less tax, while a third, less-developed proposal, would restrict the use of an incorporated small business as a vehicle for making passive investments unrelated to the business.

Mr. Long said it is the passive-investment provisions that are of most concern to him and his constituents. While the Prime Minister and some economists have said that small-business owners don't need to save for retirement through a corporate structure because they have access to registered retirement savings plans and tax-free savings accounts, critics have challenged that view. Business leaders have said RRSPs do not provide the same level of flexibility as a source of short-term funds. Also, RRSP-contribution room is tied to income. Some business owners note that in some years, they may prefer to keep money in the corporation rather than drawing a salary, which limits their ability to save through an RRSP.

Finance Canada says the government never intended to create a tax advantage for saving through a corporation. The department has proposed several options to address this. Unlike the other two measures, the passive-investment proposals were not presented as draft legislation, leading to considerable uncertainty as to how the proposals may apply. Some tax experts have estimated that the tax rate on passive-investment income earned in a corporation could rise from about 50 per cent to 70 per cent or higher once the income is paid out to the shareholders.

While Mr. Trudeau was talking to reporters, Finance Minister Bill Morneau was meeting with members of the St. John's business community. But not all business leaders walked away from that meeting with the sense that they had been heard.

Dorothy Keating, chair of the St. John's Board of Trade, said she was "extremely disappointed" with the reception that she and the others were given by Mr. Morneau. "I don't feel that the message was listened to. I feel that this is a fait accompli," she said.

Mr. Morneau said there is a significant amount of misinformation being circulated about what is actually on the table, and that people who opposed the changes are using calculations to make small business owners unduly concerned.

In a televised interview with CBC Newfoundland this week, Mr. Trudeau said "wealthy folks" are behind the vocal criticism of his government's tax measures.

"A lot of people have realized that these changes will take away benefits from wealthy folks," he said. "And a lot of those wealthy folks are really fighting to keep those benefits that they have and they're making a lot of noise."