How a tax on $1M homes across Canada could pay off in Sask.
Paul Kershaw worries that while Canada’s economy is more prosperous than ever, younger generations are struggling with lower earnings, higher costs, growing debts and a deteriorating environment. That's why Kershaw, the founder of Generation Squeeze, proposes putting a price on housing inequity by adding a surtax (starting at 0.2 per cent and peaking at 1 per cent) on home value over $1 million in order to slow down home prices so earnings have a chance to catch up.
He spoke with CTV News at Five anchor Matt Young to defend the idea and explain why Saskatchewan residents should embrace it. This interview has been edited for length and clarity. The entire interview can be watched using the player above.
I don't know of many times putting a tax on something actually helps the prices go down. Usually, from what I've seen, you put a tax on something, the price goes up. How can you think in this case it would bring housing prices down?
That's a great question. And so first of all, what we're proposing is a surtax on home values only over $1 million. That would apply to only 10 per cent of Canadian households in the country, which means 90 per cent wouldn't pay any more. And since most of the homes over a million bucks are concentrated in B.C. and Ontario, we're actually proposing something that would have almost no impact in terms of paying more in the province of Saskatchewan.
Actually, Saskatchewan is going to be a place that likes this idea because our overarching argument is that when it comes to reducing housing unaffordability and wealth inequality, we need to start protecting real shelters more than tax shelters. Your listeners might be wondering, "what do you mean, tax shelter?" For any listener today, if you went to work 100 per cent of your earnings are going to be taxed. If you invest some of those earnings in the stock market, 50 per cent of any return on your investment will be subject to tax. But by contrast, the wealth gained in somebody's principal residence is barely going to be taxed at all.
I understand that, but still, I mean I fail to see how this lowers home prices. Your own report says there is a risk that homeowners would just pass that cost down to renters. And quite frankly, if you're a homeowner and you're selling a home and you're looking at a $10,000 tax bill, you're just going to raise the price to recover that.
Because you have to think about how tax shelters work. We all know that there are offshore tax shelters and (they) frustrate us. They motivate Canadians to move money offshore in order to preserve assets, so we're incentivized by tax rules to move our money.
When we have homeownership tax shelters as I described at the beginning of the interview, it incentivizes Canadians to bank on high and rising home prices. And the moment that our policy system turns homeownership into an investment strategy, we entangle those owners and hope that home prices will rise beyond local earnings. The moment we build that hope into our housing system, we tolerate (higher) home prices and that is what's crushing affordability and harming younger and future generations. And so our (proposed) tax is designed to address at the system level to change people's wants and hopes for what we expect of housing prices.
The report suggests that there could be some trouble getting some political support for this. That's a lot of lobbying political risk, potentially, for a federal government. Can I ask you about that?
Yeah, that's a great question. We didn't put out this proposal anticipating there would be any party ready to jump on it right away. We actually really are in a competition for the hearts and minds of Canadians. What do we want from housing? Do we want housing to be a place to call home? Or do we want housing to be a way to make really good money?
Second, people in Saskatchewan I think should be, "Yeah!" because … we don't see the same price escalation. Way to go. Let's celebrate affordability. Our work pays off more in your province than it does in B.C. or Ontario, especially for young people.
So we are saying, let's try and compete for people to reorient ourselves and what we want to do, by talking about this tax. We know it'll get some people angry early on, but I hope in Saskatchewan the listeners there say, wait, you're talking about not taxing me more, trying to improve housing affordability in other parts of the country and raise some revenue that might result in building deeply affordable cooperative and rental housing in my communities - that sounds great. And then we can try and build some political cover for our politicians to be courageous to address the reality that the skyrocketing gap between home prices and earnings is just killing the way that hard work pays off for people, especially young people in many parts of the country.