Juno News - Freeland’s capital gains tax hike is more problematic than you think

00:00:00.000 Again, I'm sure anyone who criticizes the federal budget is also most certainly falling

00:00:14.080 victim to misinformation, including perhaps those who oppose the capital gains tax. There

00:00:19.960 were hundreds, well over a thousand people from the business and tech and entrepreneurial space

00:00:24.900 that signed an open letter to the federal government calling out this increase to the

00:00:29.100 capital gains tax. We have a number of experts that are saying this is going to kill off or severely

00:00:35.400 curtail innovation in this country. And now you have a piece that I wanted to highlight from our

00:00:41.720 friend Jake Fuss of the Fraser Institute. Ottawa's capital gains tax hike is the final nail in the

00:00:48.280 business investment coffin. Jake is the director of fiscal studies for the Fraser Institute and it's

00:00:53.780 always good to have him back on the show. Jake, welcome. Thanks for coming on. Thanks very much

00:00:57.960 for having me back on. So this can be very abstract for a lot of people. There are a lot of Canadians,

00:01:03.500 especially as they're doing their personal income tax that don't know if they have capital gains that

00:01:08.940 may never have capital gains and they think, okay, well, this doesn't really affect me, but it does

00:01:13.460 affect everyone if it is stifling business and growth, does it not? Well, absolutely. I mean,

00:01:19.060 right now we have a business investment crisis in Canada from 2014 to 2022. Our per worker business

00:01:26.260 investment has fallen by almost $4,000 even after we account for inflation. That's not the situation

00:01:32.000 in other countries like the United States where they're actually increasing their per worker business

00:01:37.020 investment right now. And this is really critical to actually equip workers with the tools and

00:01:41.980 technology that we need to improve productivity and ultimately to actually increase people's wages

00:01:47.140 over time. Because when businesses become more profitable and more efficient and more innovative

00:01:52.100 over time, this actually benefits workers and living standards in Canada. But a measure like

00:01:56.820 increasing capital gains taxes is only going to make the situation worse for business investment

00:02:01.780 over the long run. Yeah. And I was pointing, or I would point out to this one section in your piece

00:02:08.920 here where you talk about how it is reducing the return on investment, encouraging an exodus of capital.

00:02:15.100 And that part is so key because capital is not restricted by geography at this point. I mean,

00:02:20.240 you can make whatever claims you want about globalization, but the reality is we do have a

00:02:23.960 globalized economy. People can put their billions of dollars, their millions of dollars,

00:02:27.920 basically anywhere in the world. And countries do need to be competitive.

00:02:32.480 Absolutely. And we're not competitive already on many forms of taxation, whether that's business taxes,

00:02:37.520 personal income taxes, capital gains taxes, you know, this is only going to exacerbate the issue now.

00:02:43.360 And capital is very mobile. And one of the most economically damaging sources of taxation

00:02:48.080 taxation is taxes on capital. So people just take their money elsewhere, they're either just not

00:02:52.720 going to invest in Canada at all, or they won't invest as much as they would have in another

00:02:56.720 scenario where taxes were lower on capital. And this is the very capital that we need to actually

00:03:02.080 improve living standards and wages for Canadians. So this is ultimately going to be a detrimental policy

00:03:08.800 towards attracting investment and retaining it in Canada as well.

00:03:12.720 So is there a way to quantify exactly how much damage this will do? Or does that really depend on,

00:03:22.240 does it depend on things we don't really know right now?

00:03:24.240 I mean, I think it's gonna be tough to quantify exactly, you know, how this is going to affect it.

00:03:30.080 But even when we look at already the changes on business investment and productivity in Canada,

00:03:35.440 you know, we've either had stagnant or declining investment and productivity. And that has a big

00:03:40.640 correlation or causation from government policy. So when we're having increased regulations, high taxes,

00:03:48.160 and also massive uncertainty for businesses, when you have you're consistently running deficits,

00:03:52.720 that creates uncertainty for businesses in the future, that they could face future tax increases.

00:03:57.760 I mean, and this is already something that we're seeing now capital gains taxes are essentially being

00:04:02.000 used as a revenue generation tool to pay for a lot of the spending that the federal government is

00:04:06.640 currently taking on. So this is this is one of the many things that is just going to affect businesses

00:04:12.800 and individuals as well, and deter more investment in Canada.

00:04:17.600 One point here that I think is incredibly, incredibly important to note is that a lot of the criticism

00:04:23.760 is coming from people that are not in that Uber 1% category. I think there's a way to frame this

00:04:29.360 where you think, okay, a capital gains tax increase, this is about the Uber wealthy,

00:04:33.360 family doctors, one example, one group, not an Uber wealthy group. Yes, they're upper middle class,

00:04:38.240 sometimes beyond that. But they've structured their businesses in a way where they have corporate

00:04:42.320 capital gains that they rely on. So there are a lot of middle class people that are pretty directly

00:04:48.480 affected by this. Yes, I think it's very misleading to just say that, you know, the rich are the only ones

00:04:54.240 that are going to be paying the capital gains taxes. I mean, my colleagues did an analysis a few years ago,

00:04:58.640 where they found if you remove kind of these one time capital gains amounts, and just look at

00:05:03.920 people's normal annual incomes, less than half of the capital gains taxes that are paid in Canada

00:05:09.680 are paid by people with $150,000 or more of annual income. So it's very misleading to just say, oh,

00:05:16.080 this is only going to impact the rich. It's going to impact many Canadians that are not just in that

00:05:21.600 wealthy income group as well. And we're already seeing, you know, a lot of people coming out against

00:05:26.400 this policy as well. I know you alluded to this earlier as well, but we weren't exactly in a great

00:05:32.080 place even before this budget when it came to business investment. I mean, this was already

00:05:35.840 something where we've seen a fair bit of decline. I mean, really going back almost a decade, isn't it?

00:05:40.880 Exactly. I mean, we've been seeing this collapse in business investment really since the end of 2014.

00:05:46.480 We also have a situation now where our GDP per capita is it was lower at the end of 2023 than it was at

00:05:52.160 the end of 2014. And then we had, you know, Caroline Rogers from the Bank of Canada raising

00:05:57.200 the alarm about our productivity challenges in Canada. So we have big problems going into the

00:06:03.280 federal budget. And now not only are we not addressing those problems, we're actually making

00:06:07.280 a lot of the problems even worse in terms of innovation, productivity, economic growth,

00:06:12.880 improving living standards for Canadians, job creation, all of these things that we needed more of,

00:06:17.840 we're now likely going to get less of those due to some of the government policies that are being

00:06:22.000 undertaken currently. The piece in business in Vancouver, Ottawa's capital gains tax hike,

00:06:27.760 final nail in the business investment coffin. Thanks so much, Jake. Good to talk to you.

00:06:32.000 Thanks for having me on. Thanks for listening to The Andrew Lawton Show.

00:06:35.520 Support the program by donating to True North at www.tnc.news.

Juno News - May 07, 2024

Freeland’s capital gains tax hike is more problematic than you think

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