At a time when the federal government is already mired in a laundry list of scandals, it might be hard to focus much on tax policy, but what the Trudeau government has done with capital gains should be an enduring stain on their record.
When Prime Minister Justin Trudeau announced that he was resigning, and proroguing Parliament to give the Liberal Party time to pick a new leader, he created further chaos and confusion for investors and entrepreneurs who have already taken a beating from the government in the past year.
The good news is that the capital gains tax hike announced in the 2024 budget is likely dead, as all implementing legislation on the Parliamentary order paper was suspended at the time of prorogation.
The bad news is that the government already started collecting the increased capital gains tax starting last June, because the Canada Revenue Agency followed their standard practice to take it on faith that the government would eventually pass the legislation.
But that’s not actually the worst part of it all.
Eventually CRA will likely issue refunds and unwind this whole awful capital gains adventure, but what can’t be reversed is the significant market distortions caused by the government playing cheap politics with economic policy.
Here’s the critical aspect of the capital gains tax policy that was so insidious: The tax hike was announced on April 16, 2024, but it didn’t come into effect until June 25. That gave investors, entrepreneurs and asset owners two months to scramble and sell their assets in order to lock in capital gains at the lower rate.
In their own budget documents, the government admitted that they’d see a multi-billion dollar bump in revenue from the capital gains tax hike in 2024, effectively acknowledging that the result of this two-month window was to pull forward a bunch of capital transactions. This short-term bump in revenue helped to mask the size of the deficit last spring.
And now, it turns out that this whole affair is ending in confusion. The tax hike isn’t going through, so the Trudeau government distorted the market and harmed investor confidence for nothing.
Canadians should be furious that this government has been playing games with economic policy, and vilifying investors and entrepreneurs in the name of desperate populism.
But the truth is, sound economic policy has never been this government’s strong suit.
Over the past decade, the government has championed a parade of different schemes to make Canada more productive and innovative — the superclusters, the Canadian Innovation Corporation, the Canada Growth Fund, and the Pan-Canadian AI Strategy.
One after another, all of these schemes have foundered and collapsed based on inattention and neglect from Ottawa. The reality is that good economic policy relies on vision, collaboration, and detail-oriented follow-through. Instead, we’ve had photo-ops and flashy announcements from a government that’s more interested in the next shiny object, and less interested in working with businesses on the careful work of implementation and ongoing management.
And now, with an incoming U.S. administration and not a moment to lose, we are facing down the prospect of a two-month period of lame-duck leadership, dithering and further uncertainty. The best thing to be said about Prime Minister Trudeau’s resignation announcement this week is that it is a chance for a reset.
This is a chance for all parties to present their vision for a prosperous, sovereign, and economically strong Canada — one that prioritizes domestic success while remaining competitive on the global stage.
The best way to accomplish this would be through policies that actively support our homegrown success stories. Transforming government procurement to give small and medium-sized Canadian companies the best chance at federal contracts would be a step in the right direction.
Overhauling the government’s flagship R&D tax credit to prioritize Canadian companies would also be a welcome step. (Trudeau’s government took some steps in this direction with their fall economic statement, but of course that was shredded when he prorogued Parliament.)
Canada’s economy is not in great shape right now, and we need to be strong and strategic in a tough global environment. We cannot afford anything less than clear-eyed leadership, working hand-in-glove with Canadian businesses and investors, to create the prosperity and wealth that we will all benefit from.
National Post
Benjamin Bergen is president of the Council of Canadian Innovators, a national business council representing more than 150 Canadian-headquartered technology companies. Founded in 2015, CCI advocates for better economic policy to create prosperity and security for Canada.