The Liberal government of Prime Minister Justin Trudeau has raised the capital gains tax inclusion rate in its latest federal budget. The measure, announced by current Finance Minister Chrystia Freeland, will increase the portion of capital gains that are subject to taxation from 50% to 66.67% for gains over C$250,000 for individuals, while corporations are subjected to the new rate for all capital gains.
The change is projected to raise C$19.4 billion in new tax revenue over the next five years, including C$6.9 billion in the current fiscal year. However, Bill Morneau, who served as Trudeau’s finance minister from 2015 to 2020, warned that the move could have a “chilling effect” on future investment in Canada.
“This was very clearly something that while I was there, we resisted,” Morneau said in a webcast hosted by accounting firm KPMG on Wednesday. “We resisted it for a very specific reason: concerned about the growth of the country.”
Morneau argued that capital gains tax rates are a major concern for investors and that the increase could hinder Canada’s long-term economic growth and productivity. He said the move represents a “negative” for the government’s goal of promoting productive investment.
The finance minister of Ontario, Canada’s largest province, also criticized the capital gains tax hike. Peter Bethlenfalvy said on Bloomberg TV that he just doesn’t think “you can tax your way to prosperity,” and noted that Ontario is extending a cut to gasoline and fuel taxes.
Former Bank of Canada Governor David Dodge had the same concerns ahead of Freeland presenting the 2024 budget. He told CTV News early in the week that he believes the move was likely to slow economic growth rather than raise the funds needed to finance the government’s nearly $40 billion in new spending commitments.
However, the federal government has defended the measure as a way to make life more affordable for younger Canadians, particularly millennials and Gen Z. The budget includes a section titled “A fair chance for Millennials and Gen Z” that devotes $2.6 billion in new spending over five years to student loans and job training.
Overall, the 2024 federal budget includes $53 billion in additional spending over five years, which the government says will be funded in part by the capital gains tax increase and other revenue measures. Freeland has argued that the new taxes are necessary to finance key investments without exceeding the government’s fiscal targets.
The capital gains tax hike effectively reverses a policy change made by a previous Liberal government in 2000, when the inclusion rate was cut from two-thirds to one-half. The current government believes making the “rich pay more” will be politically popular, but critics like Morneau, Bethlenfalvy and Dodge warn it could undermine Canada’s economic competitiveness and growth prospects.
Information for this story was found via Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
One Response
Canadians really need to stand up for this country. This is the worst Gov’t we’ve seen to date! In my opinion both the Liberals and the NDP need a real “wake up” notice. They do NOT deserve any support what’s so ever from the hard working class Tax Payer/Canadian.