Feds should have independent review of taxes, says Manitoba finance minister

Manitoba Finance Minister Cameron Friesen says that despite walking back some of its controversial tax-reform proposals, the federal government should simply abandon its plan altogether and appoint an independent commission to take a broad look at taxes.

"We believe that the proposed changes to tax treatment of small business discourage hope and penalize ambition," Friesen told a Senate committee hearing in Winnipeg on Thursday.

The committee is holding hearings across the country on the tax-reform proposals put forward earlier this year.

"What is truly required, if we're going to embark on this path, is an independent tax-reform commission ... one that has the resources sufficient to take on a comprehensive examination of who we are as Canadians."

Friesen pointed to the Royal Commission on Taxation in the 1960s, set up by then-prime minister John Diefenbaker, as an example.

The federal government is proposing several changes that would limit tax breaks for business owners and private corporations.

One proposal would restrict the current ability of owners to reduce their tax rate by sprinkling their income among family members. Another would limit the ability of corporations to convert regular income into capital gains, which are taxed at a lower rate.

Another would put limits on the use of private corporations to make passive investments unrelated to the company.

The Trudeau government has said the changes are needed to level the playing field for middle-class earners who do not get the same tax breaks as corporations.

Sen. Andre Pratte asked Friesen whether existing tax breaks are too widespread. He suggested a doctor who incorporates may not warrant the same tax breaks as a small business owner who has to invest with no guarantee of return.

"Their risk level is not the same. They're in a very different situation," Pratte said.

The senator also pointed out the number of doctors who have incorporated has risen sharply in Manitoba in the last decade.

Friesen said a doctor he recently spoke with said the corporate tax structure will allow her to take maternity leave and also handle debt from her years of education.

Federal Finance Minister Bill Morneau said last month he would scale back some of the proposed changes. The plan to go after passive investment income will be altered, he said, so that only three per cent of the most-wealthy privately owned corporations will have to pay higher taxes.

Friesen said that's not enough.

"We see these ... amendments to the proposals as being a knee-jerk reaction to try to get a better reception among Canadians. It's not helping."