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Politics Trudeau’s tax plan ‘top of mind’ for premiers at first ministers’ meeting

Manitoba Premier Brian Pallister, centre, speaks during the closing news conference at the First Ministers’ meeting in Ottawa on Dec. 9, 2016. Also pictured are Prime Minister Justin Trudeau, left, Nova Scotia Premier Stephen McNeil, Prince Edward Island Premier Wade MacLauchlan and Alberta Premier Rachel Notley.

Chris Wattie/Reuters

Canada's premiers are raising strong concerns over the federal government's proposed changes to small-business tax rules as they prepare for a first ministers' meeting Tuesday with Prime Minister Justin Trudeau.

The provinces are constitutionally responsible for health-care delivery and the federal proposals have infuriated many doctors, prompting threats that some will leave the country if their take-home pay is dramatically reduced.

Provincial sources say one of the concerns is that doctors will ultimately expect the provinces to pay for some form of compensation if the federal changes hurt them financially.

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The jam-packed agenda for the one-day meeting includes a morning discussion of Indigenous issues, an economic briefing with Bank of Canada Governor Stephen Poloz and Chief Statistician Anil Arora, an update on the North American free-trade agreement negotiations and a session on next year's planned legalization of recreational marijuana.

But the tax issue is expected to dominate.

"Top of mind is the tax issue," said Ontario Premier Kathleen Wynne, who is typically a close Trudeau ally. The Premier is also under fire from small-business groups for her plan to raise the provincial minimum wage.

Ms. Wynne said Ottawa has not properly explained who will actually be affected by the proposed small-business tax changes.

"We just want to understand what the implications will be," Ms. Wynne told The Globe and Mail Monday. "I want to make sure we continue to have small businesses invest in our province and grow and thrive and so to the extent that that might be at risk, I would be worried. And that is why I think it's good that we have a conversation with the Prime Minister."

Consultations on the federal government's tax plan officially closed on Monday. Finance Minister Bill Morneau, who released the proposals in July, is also scheduled to meet with the premiers to discuss their concerns.

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Liberal Premiers Brian Gallant of New Brunswick and Dwight Ball of Newfoundland and Labrador were diplomatic on Monday in interviews as they expressed their concerns about the tax changes.

"We want to make sure we express the concerns of some of the business people and some of the health-care professionals who have concerns," Mr. Gallant said.

Manitoba Premier Brian Pallister, a Progressive Conservative, delivered the most direct criticism of the federal plans.

"There's a downloading to provincial coffers, for sure," he said. Mr. Pallister criticized Mr. Trudeau and Mr. Morneau for "divide and conquer" language about loopholes that he said makes small-business owners sound like cheaters.

"They've got to go back to the drawing board," he said. "I think, frankly, because somebody in their communications shop decided that they wanted to play this group against that group, and the Prime Minister and his minister bought into it, they poisoned the well of a healthy discussion."

Saskatchewan Premier Brad Wall, who is also a strong critic of the Liberals' small-business tax changes, is unable to attend the conference, but asked to join the meeting via teleconference. The Trudeau government said no to the request. Deputy Saskatchewan premier Don Morgan will take Mr. Wall's place at the table.

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A provincial source says the original agenda did not include the tax changes or marijuana, but the premiers pushed to have them added.

The proposed federal changes would discourage the ability of incorporated small-business owners from "sprinkling" income to family members as a way of paying less tax. They would also restrict the conversion of dividend income into lower-taxed capital gains. A third proposal would restrict the use of an incorporated small business as a vehicle for making passive investments unrelated to the business.

Conservative MPs continued to raise the concerns of farmers and other constituents during Question Period in criticizing the tax proposals.

"It seems the Liberal government looks at hard-working Canadian farm families as nothing more than wealthy tax cheats," Conservative MP John Barlow said. The statement prompted Liberal Agriculture Minister Lawrence MacAulay to respond.

"Farmers in our country are not tax cheats and that is an inappropriate statement to say that," he said. "What we want to do is create a system that is fair."

The first hours of meetings on Tuesday will include the leader of the Assembly of First Nations (AFN) as well as representatives of Inuit and Métis organizations. Mr. Trudeau, who said when he was first elected that there is no more important relationship to Canada the one with its Indigenous people, has been careful to include them at all such gatherings.

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But Perry Bellegarde, the National Chief of the AFN, says two hours is not enough time to tackle all of the issues that are facing the First Nations and he will ask for a separate first ministers' meeting on Indigenous issues.

Former Liberal prime minister Jean Chrétien, who was on Parliament Hill on Monday for the swearing in of Julie Payette as Governor-General, said tax changes are always challenging politically.

"At least in this case they went out and consulted people and they will have to find a solution that is acceptable to everybody," he said. "Dealing with taxes when in government is always terrible, because it's the last thing that people want to talk about. Nobody pays taxes with huge smiles."

With files from Gloria Galloway and Laura Stone

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