We asked an economist if the capital gains tax changes will really generate nearly $20B
The Liberals' proposed changes to the capital gains tax passed in the House of Commons on Tuesday, clearing the way for the federal government to hike the amount of tax Canadians pay on the sale of assets or investments.
The changes, which come into effect June 25, will raise the inclusion rate on capital gains to 67 per cent for Canadians earning more than $250,000 through stocks or secondary properties, up from the current 50 per cent.
Since it was first brought up in April, several business groups have criticized the proposals, including a joint letter from the Canadian Chamber of Commerce, the Canadian Federation of Independent Business, Canadian Manufacturers and Exporters, and several other organizations.
"This measure will limit opportunities for all generations and make Canada a less competitive, and less innovative nation," the letter said.
To counter the pushback, Prime Minister Justin Trudeau released a video on social media May 13, explaining the changes will only affect "less than one per cent of people."
"At a time when the richest are only getting richer, I think it's fair to ask those people to pay a little more," Trudeau said in the video. He also claimed that the changes "will result in almost $20 billion in new revenue" — $19.7 billion over five years, to be exact — that will go to investments in affordable housing.
But how accurate are the government's claims? Would these proposed changes really provide that much new revenue for the feds? Will Canada's ultra-wealthy be the ones who pay their "fair share" through the new tax increase?
Would the government really be able to generate $20B in tax revenue?
Joseph Steinberg is an associate professor with the University of Toronto's economics department. With a PhD in economics, Steinberg's research uses quantitative models to study public finance and policy.
Speaking with CTVNews.ca, he says these types of policies are unlikely to raise much in the way of tax revenue, and that it will be far less than the near $20 billion the government claims it could generate.
"I don't think that this specific policy is likely to be successful," he said. "Suppose this policy is going to affect less than one per cent of Canadian households, or the very, very rich. The problem with this is they're precisely the same population of households that engage in offshore tax evasion and other forms of tax avoidance."
Through years of research, Steinberg says bills and legislation similar to this only affect "moderately" rich Canadians – those we may consider to be upper-middle class, who own two cars, maybe own or share a cottage – not the ultra-wealthy that it's being promoted as targeting.
Leader of the Liberal Party of Canada Justin Trudeau speaks during a Liberal Party of Canada fundraiser in Ottawa, on Monday, June 10, 2024. (Spencer Colby/The Canadian Press)
"Imagine somebody who's got an investment property or a cottage. Maybe they won't sell it this year or next year, but they're going to sell it at some point in the future," he said. "If that sale goes beyond $250,000, that household is going to be affected. Very few Canadians annually earn more than a quarter-of-a-million dollars in capital gains, but the percentage of people who will at one point, that exceeds one per cent."
Going one step further, Steinberg says the ultra-wealthy usually like this kind of policy, because "they have ways to avoid them."
"If the goal (of the proposal) is to reduce inequality," he continued, "these kinds of policies aren't going to help."
What could the government be doing instead?
Steinberg says this type of proposal doesn't really attack one of the root causes of wealth inequality, which he says is tax avoidance.
"Given what my research into policies on raising taxes on the wealthy has found … since we don't enforce any rules against tax avoidance and tax evasion, these kinds of policies are really unlikely to raise much, if any, in the way of tax revenues."
The Canada Revenue Agency (CRA) estimates Canada loses nearly $3 billion a year in offshore investing, which is close to how much the government projects to bring in each year with the changes. Steinberg reiterates that's where the government could make the rich pay their fair share.
"I would recommend, instead of this policy, ramp up enforcement of tax evasion by the ultra rich. Give the CRA even more resources to audit really rich households, more resources to fight money laundering," he said.
"The return on that investment would be pretty high for the government."
Pushback and praise for the proposals
Others have criticized the proposals, including some in the tech sector. When Deputy Prime Minister and Finance Minister Chrystia Freeland introduced the motion to Parliament Monday, Shopify president Harley Finkelstein shared a critical post on X, calling the move "a tax on innovation and risk-taking."
"Investing in new products or ideas is inherently risky. Entrepreneurs need incentives, not penalties, to drive (Canadians) forward," he wrote. "This policy will disincentivize risk-taking and tax Canadian ambition at a time when we need more entrepreneurs, not fewer."
But while the Liberals hammer the point that the proposal targets the richest people in the country, Steinberg says it's impossible to ignore the amount of pushback it's received from those in various tax brackets.
"I think it's fair to say that Trudeau and his government are pretty unpopular, and people are less likely to be inclined to view any kind of policy that his government proposes favourably," he said.
Steinberg also says the rising costs of living and inflation are at the forefront of Canadians' minds, and that this proposal may not be something they perceive as helpful in their day-to-day lives.
Not everyone thinks the policy would stifle innovation. Jon Shell is the chair of Social Capital Partners, a non-profit that focuses on rising wealth concentration. Through a post on his LinkedIn page, he argues that the capital gains tax in the '90s was 75 per cent.
"(The '90s) also happens to be the decade everyone says was best for productivity, growth, investment, whatever," he wrote. "All the productivity people LOVE the 1990s. Lowering the rate (to 50 per cent in October 2000) had no impact on productivity or investment, but was certainly great for the super rich, and certainly great for me when I sold my companies in 2020."
Several groups representing educators have also spoken in favour of the proposal, saying it could make a difference for future generations of Canadians.
"The Canadian Teachers' Federation (CTF) is pleased to support changes that contribute to the federal government's ability to make investments that enhance the common good, such as a national school food program, child care, poverty alleviation and more," Cassandra Hallet, the executive director of the CTF said on X.
Karen Littlewood, president of the Ontario Secondary School Teachers' Federation, echoed the sentiment.
"Asking for tax fairness is not a bad thing," she wrote on X. "Asking the wealthiest 0.13 per cent of Canadians to pay a little more so ALL Canadians can have pharmacare and dental and school nutrition programs is a good thing."
IN DEPTH
Jagmeet Singh pulls NDP out of deal with Trudeau Liberals, takes aim at Poilievre Conservatives
NDP Leader Jagmeet Singh has pulled his party out of the supply-and-confidence agreement that had been helping keep Prime Minister Justin Trudeau's minority Liberals in power.
'Not the result we wanted': Trudeau responds after surprise Conservative byelection win in Liberal stronghold
Conservative candidate Don Stewart winning the closely-watched Toronto-St. Paul's federal byelection, and delivering a stunning upset to Justin Trudeau's candidate Leslie Church in the long-time Liberal riding, has sent political shockwaves through both parties.
'We will go with the majority': Liberals slammed by opposition over proposal to delay next election
The federal Liberal government learned Friday it might have to retreat on a proposal within its electoral reform legislation to delay the next vote by one week, after all opposition parties came out to say they can't support it.
Budget 2024 prioritizes housing while taxing highest earners, deficit projected at $39.8B
In an effort to level the playing field for young people, in the 2024 federal budget, the government is targeting Canada's highest earners with new taxes in order to help offset billions in new spending to enhance the country's housing supply and social supports.
'One of the greatest': Former prime minister Brian Mulroney commemorated at state funeral
Prominent Canadians, political leaders, and family members remembered former prime minister and Progressive Conservative titan Brian Mulroney as an ambitious and compassionate nation-builder at his state funeral on Saturday.
Opinion
opinion Don Martin: Gusher of Liberal spending won't put out the fire in this dumpster
A Hail Mary rehash of the greatest hits from the Trudeau government’s three-week travelling pony-show, the 2024 federal budget takes aim at reversing the party’s popularity plunge in the under-40 set, writes political columnist Don Martin. But will it work before the next election?
opinion Don Martin: The doctor Trudeau dumped has a prescription for better health care
Political columnist Don Martin sat down with former federal health minister Jane Philpott, who's on a crusade to help fix Canada's broken health care system, and who declined to take any shots at the prime minister who dumped her from caucus.
opinion Don Martin: Trudeau's seeking shelter from the housing storm he helped create
While Justin Trudeau's recent housing announcements are generally drawing praise from experts, political columnist Don Martin argues there shouldn’t be any standing ovations for a prime minister who helped caused the problem in the first place.
opinion Don Martin: Poilievre has the field to himself as he races across the country to big crowds
It came to pass on Thursday evening that the confidentially predictable failure of the Official Opposition non-confidence motion went down with 204 Liberal, BQ and NDP nays to 116 Conservative yeas. But forcing Canada into a federal election campaign was never the point.
opinion Don Martin: How a beer break may have doomed the carbon tax hike
When the Liberal government chopped a planned beer excise tax hike to two per cent from 4.5 per cent and froze future increases until after the next election, says political columnist Don Martin, it almost guaranteed a similar carbon tax move in the offing.
CTVNews.ca Top Stories
DEVELOPING Israel launches strikes on military targets in Iran, escalating Mideast wars
Israel launched airstrikes early Saturday on what it described as military targets in Iran in retaliation for a ballistic missile assault Oct. 1, officials said. There was no immediate information on damage in the Islamic Republic.
DEVELOPING Scotiabank confirms outage for mobile, online banking
Scotiabank has confirmed outages affecting mobile and online banking services, according to a statement published to its X account.
'I did everything I could': Canada Post driver recounts helping save woman from fiery Tesla crash
Canada Post driver Rick Harper recounts how he and others helped save a woman from a Tesla that caught fire after crashing into a guardrail on Lake Shore Boulevard.
An abrupt goodbye to a guerilla goldfish aquarium beneath a leaky Brooklyn fire hydrant
A makeshift aquarium that popped up this summer in a puddle beneath a leaky fire hydrant in New York City has been paved over, to the dismay of neighbours who turned the area into a hangout spot and goldfish shrine.
Climate change breaks heat records across Canada this summer
Human-caused climate change made almost all of Canada’s heat waves hotter and more likely, Environment and Climate Change Canada said in an announcement Friday.
Mother who beat and starved her 5-year-old son to death sentenced to over 50 years in prison
A New Hampshire woman was sentenced Friday to 53 years to life in prison in the death of her 5-year-old son, who was beaten, starved and exposed to drugs before his 19-pound body was found buried in a Massachusetts park in 2021.
'Get away from your inner circle': Liberal MP 'shocked' PM didn't take more time to reflect on calls to resign
Longtime Liberal MP Wayne Long says Prime Minister Justin Trudeau should give more weight to the views of his backbenchers in determining his future leading the Party, rather than relying on those in his immediate orbit.
Mom and child jumped from a window to escape a Las Vegas fire that killed 2 children and 2 adults
Two adults and two children were found dead in the charred rubble of a house fire after a mother and another child jumped from a third-floor window to escape flames in a southwest Las Vegas neighborhood, authorities said.
Russian actors made fake video depicting mail-in ballots for Trump being destroyed, FBI says
Russian actors made a widely circulated video falsely depicting mail-in ballots for Donald Trump being destroyed in Pennsylvania, U.S. officials said Friday.
Local Spotlight
Meet the rescued duck at a Manitoba farm who has waddled her way into the internet's heart
A new resident at a Manitoba animal rescue has waddled her way into people's hearts.
Runners try to 'Beat Beethoven' classics during unique Halifax race
Hundreds of people ran to the music of German composer and pianist Beethoven Wednesday night in a unique race in Halifax.
'Things are very hard here': Popular Toronto crossing guard asks community for help finding work
He is a familiar face to residents of a neighbourhood just west of Roncesvalles Avenue.
Sky over Lake Erie lights up with fireball as Orionid meteor shower peaks
A meteor lit up our region's sky last night – with a large fireball shooting across the horizon over Lake Erie at around 7:00 p.m.
'Aggressive' wild turkey causing problems for residents in Ottawa's Rideauview neighbourhood
Residents of Ottawa's Rideauview neighbourhood say an aggressive wild turkey has become a problem.
Man who died in floodwaters among 8 Nova Scotians awarded Medal of Bravery
A man who lost his life while trying to rescue people from floodwaters, and a 13-year-old boy who saved his family from a dog attack, are among the Nova Scotians who received a medal for bravery Tuesday.
Professional mountain biker attempts new world record in Winnipeg
A newly minted Winnipegger is hoping a world record attempt will help bring awareness for the need for more pump track facilities in the city.
'He's a hero': Father runs into burning home and emerges with two infant children
A Springfield, Ont. man is being hailed a 'hero' after running into his burning home to save his two infant children.
'I am humbled': Meet the 87-year-old Ontario woman who graduated from York University
Hortense Anglin was the oldest graduate to make her way across the platform at York University's Fall Convocation ceremony this week. At the age of 87, she graduated with an Honours degree in Religious Studies.