Cutting Holes in the Federal Home Renovation Tax Credit

Apparently, the folks who aren’t big on manipulating our economy are OK with what might be the most manipulative credit in Canadian tax policy history.

Really?  The Home Renovation Tax Credit is bad?  How so?

Let’s take a deeper look:

1. It encourages spending, not saving.  The only way we’ll ever truly recover from our economic state is to re-learn how to respect our money and save it.
2. It favours a narrow class of citizens in this country.  Tax credits help those who have a substantial income from which to deduct these credits.  Hundreds of thousands of people are unemployed or barely getting by in Canada and a tax credit of this nature does nothing for them.
3. The $1350 maximum credit is similar to marketers who advertiser ‘get up to 60% off’.  You’ll be lucky if you see a fraction of that amount, regardless of what you spend on your house.
4. Most people will not be able to afford to put the full $10,000 into their homes and you just have to know there’s going to be a catch even at that level.
5. It encourages expenditure on a wide array of frivolous items (eg. swimming pools).  If we had not cut back on the GST, most of my arguments would be moot because we’d be making it back on our consumption tax (which I think should be higher, by the way).
6. It encourages the creation of debt for those who can’t afford to take advantage of the program, but who don’t want to pass up on a ‘great opportunity to get money back’ on their taxes.  This is horrendous economic policy because, as I said, we should be encouraging saving, not spending.
7. It favours home owners and home owners only.  People who rent – generally those who live in large urban areas – will not get ANY benefit from this program.
8. While I don’t have the numbers, because it favours owners over renters, it likely disproportionately benefits voters in rural areas – the power base of Con politics – as opposed to those in urban areas.  (I’d have to see numbers to make a statement on suburbs because I think there’s just as many renters as owners.)
9. It favours one industry and one industry only – home renovation.  For a group of people that regularly say that they don’t want to play favourites (ie. the Cons and their economic policy), this is a pretty odd way of sticking to your guns.  If you didn’t want to play favourites, you’d just have a one-time, no holds barred tax credit without conditions on where the money should be spent.
10. Because it favours an industry that is generally dominated by men, it’s sexist.  Most unemployed females will not benefit from demand generated by this tax credit, unless maybe they’re check out girls making minimum wage at the Home Depot.  Hardly what I would call economic stimulus.
11. It IS discretionary as to what investments are eligible.  Things like furniture – which generate oodles of jobs in Ontario – are not eligible, when they should be.  (I know … this is similar to #9).
12. It’s temporary.  After spring 2010, the program will turn to vapour, what will we do to stimulate the economy?  Where’s the long term plan?
13. Because it encourages overkill in one industry, we’ll see a pendulum-like swing in excess demand turning to excess supply.  This time next year, there will be a glut of unemployed contractors (believe it or not if you’ve ever tried to get a good one).  Also, for those who legitimately need to make changes with their houses (eg. a new furnace after the old one broke down), good luck getting a GOOD contractor in the next few months.
14. It encourages contractors who previously made cash to emerge from the underground economy.  This is actually a bad thing because I believe in the underground economy.  The less money that makes it to Ottawa, the less money that gets wasted on big blue cheques going to religious schools.
15. It’s not green.  I’m not saying everything should have a green spin to it, but it’s just good politics to offer green incentives when everyone wants them.

The core of the issue here is that this is bad economic policy.

We should be spending this money on green technology, Internet innovations and other ‘industries of the future’ and not just hammers and nails.