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We're all against new taxes. But it's not that simple
Published on June 15, 2024 • Last updated 10 hours ago • 3 min read
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Deputy Prime Minister and Minister of Finance Chrystia Freeland answers questions during a press conference in Ottawa on May 1, 2024. Freeland proposed changes to capital gains tax rates in the new budget. Photo: Adrienne Wylde/The Canadian Press
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It seems odd that someone would welcome a new tax. Especially to someone who has to pay it. And I would say I'm in the top 1% of Canadian taxpayers. So, does what you're about to read support Finance Minister Chrystia Freeland's move to increase capital gains taxes? The answer is yes and no. It's easy to say “no.” We're all against new taxes. But it's not that simple. And that's the problem. No one is trying to present the whole picture. Understanding the whole picture should help us evaluate the merits of this particular tax reform.
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Let’s start with the big picture. The Canadian economy is not doing well relative to other countries. We are losing in many metrics: GDP growth, productivity, average basic income. This is an ugly picture. The government’s job is to reverse this trend and provide leadership. Nearly 20 years ago, I was on a panel with Mike Lazaridis and Joe Rotman that looked at Canada’s failure to catch up with the United States in effectively commercializing both public and private sector research activities. Unfortunately, it’s still a handicap, but important changes are happening. For example, the Creative Destruction Lab, which I chair, was born at the University of Toronto and is now a highly-regarded global technology incubator.
More importantly, the US has not been aggressive in investing in areas where the global economy is booming: the US was good at large-scale language model AI, and in fact was involved in its early stages, but US venture capital and a high appetite for risk south of the border (far more than the US can tolerate) meant that growth in that industry quickly shifted south.
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This reluctance to be aggressive also extends to putting large amounts of capital into fixed assets. As a minister in the current government once lamented to me, “We just can't seem to build any big projects in this country.” Just look at the hurdles facing the Trans Mountain Pipeline expansion. Big capital is moving away from Canada, making it harder to get big things done. We need to change this.
Canada is an energy power, but today's energy is different from tomorrow's energy. Our government has invested billions of dollars to convince automakers to build battery factories. Battery technology has applications across the energy sector, not just in EVs. We have world-class iron ore for making green steel. Canada has many opportunities to lead the green revolution. But it will require significant investment, and we will have to compete for that investment with other countries, including the Biden administration, which is spending hundreds of billions of dollars to stimulate private sector activity.
Do we want to be players or not? Do we want to be at the forefront of trillions, yes trillions, of dollars that will be spent on the green transition over the next 25 years? If so, governments need to take a leadership role. But wait a minute. We can’t borrow as cheaply as the United States, which has the only reserve currency in the world. If we don’t pay more attention to our budget deficit and our national balance sheet, the gap in borrowing costs will continue to grow. And then our currency will fall. And no other country has had a booming economy and a much higher standard of living for its people on the back of a cheap currency.
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Editor's recommendation
How to handle the two capital gains tax rates scheduled for 2024
Liberals playing with inclusion rates is the worst kind of divisive politics.
Canadians need more time to understand new capital gains inclusion rules
The truth is, we have a hard choice: invest or go home. You can't invest if you're not fiscally responsible. Apply your tax code wisely and make sure it generates an income that you can invest without discouraging you from investing. Is this latest capital gains tax rate increase going to be a backbreaker? I don't think so for a second. Those who have to pay more won't want to do it, but I say we love our country and it's full of opportunity. We need to work together to make this a country we can all be proud of. So go back to work and stop complaining.
John Risley is Chairman and CEO of CFFI Ventures Inc.
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