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
Police arrest Toronto woman in connection with three recent homicides
Police have arrested a Toronto woman in connection with three recent homicides and investigators say that they believe two of the victims may have been 'randomly targeted.'
NDP house leader says House dysfunction will be a factor in future confidence votes
NDP House leader Peter Julian says there's more his party wants to do in Parliament before the next election, but if the current dysfunction continues it will become a factor in how they vote on a confidence measure.
Canadian family stuck in Lebanon anxiously awaits flight options amid Israeli strikes
A Canadian man who is trapped in Lebanon with his family says they are anxiously waiting for seats on a flight out of the country, as a barrage of Israeli airstrikes continues.
Youth pleads guilty to manslaughter in death of P.E.I. teen Tyson MacDonald
A teen charged with the murder of another teen on Prince Edward Island last year has pleaded guilty to a lesser charge of manslaughter.
BREAKING Jury begins deliberations in Jacob Hoggard's sexual assault trial
The jury tasked with determining if Canadian musician Jacob Hoggard sexually assaulted a young woman in northeastern Ontario eight years ago began deliberating Friday after nearly two weeks of testimony that saw the singer and his accuser give starkly different accounts of what happened.
BREAKING Here's what the jury didn't hear in Jacob Hoggard's sexual assault trial
A northeastern Ontario jury has started deliberating in Canadian musician Jacob Hoggard's sexual assault trial, we can now tell you what they weren't allowed to hear.
Yazidi woman captured by ISIS rescued in Gaza after more than a decade in captivity
A 21-year-old Yazidi woman has been rescued from Gaza where she had been held captive by Hamas for years after being trafficked by ISIS.
Scientists looked at images from space to see how fast Antarctica is turning green. Here's what they found
Parts of icy Antarctica are turning green with plant life at an alarming rate as the region is gripped by extreme heat events, according to new research, sparking concerns about the changing landscape on this vast continent.
Suspect in shooting of Toronto cop was out on bail
A 21-year-old man who was charged with attempted murder in the shooting of a Toronto police officer this week was out on bail at the time of the alleged offence, court documents obtained by CTV News Toronto show.
Local Spotlight
'Very special to be home': Chantal Kreviazuk to play anniversary concert in Winnipeg
Chantal Kreviazuk is set to return to Winnipeg to mark a major milestone in her illustrious musical career.
'Too good to be true': Guy Maddin on whirlwind release of apocalyptic comedy starring Cate Blanchett
From the beaches of Cannes to the bustling streets of New York City, a new film by a trio of Manitoba directors has toured the international film festival circuit to much pomp and circumstance.
Husband and wife on road trip of a lifetime stop in Sask. for winter
A husband and wife have been on the road trip of a lifetime and have decided to stop in Saskatchewan for the winter.
Unknown Canadian soldier from First World War identified as Manitoba man
The grave of a previously unknown Canadian soldier has been identified as a man from Hayfield, Man. who fought in the First World War.
N.S. classic cars club donates hundreds of blankets to nursing homes
A group of classic car enthusiasts donated hundreds of blankets to nursing homes in Nova Scotia.
Canada's October temperatures set to teeter-totter due to record-breaking U.S. heat
Moving into the second week of October, the eastern half of Canada can expect some brisker fall air to break down from the north
New Westminster, B.C., aquatic facility named alongside Paris Olympic venue as world's most beautiful
What does New Westminster's təməsew̓txʷ Aquatic and Community Centre have in common with a historic 68,000-seat stadium in Beijing, an NFL stadium and the aquatics venue for the Paris Olympics? They've all been named among the world's most beautiful sports venues for 2024.
'Thank you Kaye San': Last surviving member of Vancouver Asahi baseball team dies at 102
The last living member of the legendary Vancouver Asahi baseball team, Kaye Kaminishi, died on Saturday, Sept. 28, surrounded by family. He was 102 years old.
'Like going to a buffet with no one else in line': Housing sales stall in Metro Vancouver, Fraser Valley
New data from Greater Vancouver and the Fraser Valley shows a surge in supply and drop in demand in the region's historically hot real estate market.