New study says higher capital gains tax could deter investment and slow innovation
A new Fraser Institute study warns that proposed increases to Canada’s effective capital gains tax rate will place the country among the least competitive in the industrialized world.
The study, titled ‘Canada's Waning Competitiveness on Capital Gains Taxes,’ evaluates the economic implications of the federal government’s decision to raise the capital gains inclusion rate.
According to Jake Fuss, director of fiscal studies at the Fraser Institute and the study’s co-author, “The evidence is clear—taxing capital gains deters investment, particularly smaller and start-up firms, which in turn slows productivity gains and innovation, all things Canada needs right now to raise living standards for workers.”
The study reveals that at the current 50 percent inclusion rate, Canada’s top capital gains tax rate ranks between 17th and 23rd among 37 high-income countries in the Organisation for Economic Co-operation and Development (OECD), depending on the province.
However, increasing the inclusion rate to 66.7 percent would position Canada between 8th and 13th, making it one of the least competitive countries in the OECD.
In contrast, the study finds that lowering the inclusion rate to 33.3 percent would significantly improve competitiveness.
Under this scenario, Canada’s ranking would shift to 30th and 31st, depending on the province, making it one of the most competitive OECD countries in terms of capital gains taxation.
Fuss emphasized the need for a policy shift, stating, “Instead of raising taxes on capital gains, policymakers should consider reducing taxes as a way of attracting much-needed investment, and reversing Canada's current economic slump.”
