Anemic economic growth. Stagnant wages. Lagging business investment.
What’s the Liberal government’s answer to all of this?
Hiking taxes on job creators and driving investment out of Canada.
That’s exactly what would have been in store for Canada had the Liberal government’s capital gains tax hike come into effect.
Sadly, Canada might already be experiencing the impact of a higher capital gains tax even with the tax hike not yet in place. The threat of an impending tax hike may already be sending investors fleeing.
That’s why Prime Minister Justin Trudeau should come out tomorrow and immediately announce plans to permanently end the government’s capital gains tax hike.
How did we get here?
Last spring, former finance minister Chrystia Freeland announced plans to hike the capital gains tax. The increase was meant to take effect on June 25, 2024, but it never actually passed through Parliament.
The Canada Revenue Agency initially announced plans to enforce the hike despite the change not being passed into law.
Because of this, many investors sold their assets in Canada. They wanted to cash in on their investments at current tax rates rather than risk holding onto them and having to later sell at a higher rate.
That was a hit to the economy Canada could ill afford.
At the same time, the government faced a legal challenge for trying to enforce a tax hike without ever passing it through Parliament.
Because of this, and public outcry, Finance Minister Dominic LeBlanc announced weeks ago the government plans to delay the enforcement of its capital gains tax hike until Jan. 1, 2026.
In other words, the capital gains tax hike is delayed, but the current government still intends to raise taxes on job creators and investors.
However, leading Liberal leadership candidates Mark Carney and Chrystia Freeland, as well as Conservative Leader Pierre Poilievre, say they’d cancel the capital gains tax hike if they become prime minister.
That means it’s highly likely that the capital gains tax increase may be a dead tax hike walking.
Still, the uncertainty Canadian businesses and investors have experienced since last spring about where Canada’s capital gains tax rate might land has led to a chilling effect on the Canadian economy.
And we don’t have to imagine what the impact on the Canadian economy will be if the capital gains tax hike were to go through.
It would cost the Canadian economy 400,000 jobs and shrink our gross domestic product by almost $90 billion, according to the C.D. Howe Institute.
Nearly 21 million Canadians currently have jobs. That means that the kind of capital gains tax hike the Liberals tried to force on Canadians could cost almost two per cent of Canadian workers their livelihoods.
Almost everyone would have a friend, neighbour or colleague impacted by job losses of that magnitude. And it’s quite likely 400,000 job losses would trigger a recession.
The government once bragged that only 0.13% of Canadians would be impacted by a capital gains tax hike.
Clearly, that’s not true.
Why?
At least one reason is the impact a capital gains tax hike would have on small businesses.
Small businesses are the backbone of the economy. But most small business owners don’t have a guaranteed pension. They rely on equity in their business as their nest egg.
A capital gains tax hike could cause some small business owners to sell or close shop. Others might invest less, hire less or even lay off some folks.
As of now, a scheduled capital gains tax hike is still on the books. So long as investors still think there’s a chance the capital gains tax rate will go up, it will continue to have a chilling effect on the Canadian economy.
And, with a potential looming trade conflict with the United States, that’s the last thing Canada can afford.
One of the best things the Trudeau government could do to help the Canadian economy right now is to announce the capital gains tax hike will be scrapped.
Canada can’t afford to wait until the end of the Liberal leadership race or after the next election to end the present uncertainty.
The capital gains tax hike must be scrapped. And it must be scrapped now.