Between a rock and a tax
New taxes don't generate growth.
Fairness in Canada, as in giving our next generation and young people a “fair chance”, somehow translates to finding new ways for the government to generate taxes rather than look at what policies and current spending is doing that aren’t generating the desired results.
Honest self-assessment and accountability could be very inconvenient in politics so confiscating more from others tends to be the solution instead of fixing the actual underlying problems that will continue to exist.
In budget 2024 the Liberals have decided to go after entrepreneurs and increase the capital gains tax. The budget increases the capital gains inclusion rate from 50% to 67% on sums greater than $250,000 in capital gains in a year for individuals and on all capital gains realized by a corporation. Too many, including politicians, missed the part that corporations don't have this $250,000 exemption.
This tax directly targets the retirement of entrepreneurs and has been deceitfully represented. I addressed it in this tweet:
Imagine the outrage if any political party targeted a double-digit confiscation of Canadians’ retirement funds. Imagine the outrage if the government announced a double-digit cut to CPP. This is exactly what is happening here to entrepreneurs and they are told it’s “fair”.
The new capital gains tax is supposed to generate $19.3B in new revenue for the federal government over the next 5 years but the cost of it could be greater.
Canada’s real GDP per capita hasn’t increased in years, our labour productivity in the business sector finished 2023 with the 3rd annual decline which is the worst concatenation in 41 years. Even the Bank of Canada sounded the alarm that Canada’s weak productivity is an emergency.
This new tax couldn’t come at a worse time. We should be doing everything possible to attract investment and retain capital in Canada. in 2023 we had an $811B gap in between Canadian direct investment abroad and foreign direct investment in Canada. Our largest gap yet.
Canada should be laser-focused on becoming a fertile destination for entrepreneurship and investment. It will also help us attract the best talent in the world. We need it to increase our productivity, standard of living, and generate a competitive private sector.
The essence of leading a highly efficient and robust economy is to generate more productivity out of the people you have. This requires investment in innovation and human capital. Labour productivity is driven by long-term investments which require trust from capital. Canada is having a hard time attracting that investment and trust as a jurisdiction which is part of the reason for the huge incentives we see in the EV space and for mass immigration.
This new tax will add even more negativity to Canada as an investment choice. It will add more risk to capital return calculations. It will cost more and make it harder for Canada to create entrepreneurs. It’s nothing more than a miscalculated short-term cash grab that will cost us elsewhere.
We need to attract more competition to decrease the prices Canadians pay, incentivize, and create conditions for innovation that will increase our overall economic growth and productivity.
This has to be done via the private sector. It’s time to stop vilifying success and ask how we can create economic mobility so more people can become successful; so more people can stop relying on the government, and so more people can re-invest in Canada to generate long-term prosperity for all. It will also generate more taxes long term rather than the short-term nickel and diming Justin Trudeau’s gov seems to be currently focused on.
What’s fair to our future generation is to provide them with a robust economy that will help them get rewarded for hard work with the best standard of living and quality of life in the world with plenty of opportunities.
It can’t be done by chasing away the investments that make it happen.