New analysis shows that the capital gains tax hike introduced by the Liberals will cost the Canadian economy even more than expected, resulting in almost $90 billion in lost GDP.
Conservative MP John Barlow cited a recent study highlighting how the tax hike could deal a crushing blow to the country’s finances..
“This is a devastating tax increase, and the impact on Canadians right across the country will be substantial,” said Barlow.
The study estimates that Canada’s GDP will fall by nearly $90 billion, 414,000 jobs will be lost, and real per capita GDP will decline by 3% due to the capital gains tax hike.
These calculations come from an analysis conducted by Jack Mintz, a Distinguished Fellow at the Macdonald-Laurier Institute.
“This is not a trivial loss to the Canadian economy,” said Mintz.
Finance Minister Chrystia Freeland previously called the tax increase a “fair” way to fund the Liberals’ spending.
The 2024 federal budget proposed $111.2 billion in new spending over the next five years and a $40 billion deficit, with no plan to balance the books.
On Aug. 30, Prime Minister Justin Trudeau officially doubled Canada’s debt, spending more than all other prime ministers before him.
Mintz estimated Canada’s capital stock would fall by $127 billion because of increased taxation of capital.
“While the impact of the capital gains tax hike is not catastrophic, it is meaningful,” said Mintz. “It’s another hit on Canada’s productivity and economic growth on top of other tax increases and more important, regulatory obstacles to investment.”
The capital gains tax hike took effect on June 25 and requires Canadians making more than $250,000 in capital gains annually to pay taxes on two-thirds of that profit instead of half.
According to the Canadian Federation of Independent Businesses, more than half of Canadian small business owners said the inclusion rate hike would affect them.
Despite the Liberals claiming that the tax increase would only affect 1 in 769 Canadians, previous polling showed that almost one in four Canadians expected to feel the hike’s impact.
The lost GDP and added unemployment are not the only things to worry about with the capital gains tax hike, according to Mintz.
He explained that the 2024 budget’s new measures reduce capital gains taxes at the individual level compared to the corporate level due to the $250,000 exemption for individuals, making it more attractive for investors to hold equities personally rather than through corporations.
“By pushing assets to be held at the individual level, some of the benefits of incorporation can be lost,” said Mintz. “Further, the increase in the capital gain tax rate encourages investors to hold on to assets longer rather than replace them with assets that provide superior returns to equity. Capital gains taxes also discourage risk-taking since the government taxes the nominal gains but does not provide a refund for potential losses.”
A group of Canada’s largest businesses previously urged the Liberals to reverse the capital gains tax hike. So too did healthcare leaders, warning that it would drive doctors out of Canada, exacerbating the country’s healthcare woes.
All of the arguments made by Mintz suggest that productivity will be reduced by raising taxes on capital investments, he argued.
An August report from the C.D. Howe Institute revealed that Canada’s productivity crisis is already “getting worse” and falling further and further behind the United States.
Conservative Leader Pierre Poilievre pledged he would reverse the capital gains tax hike after his party was the only one to vote against the motion to implement it.