But its views on taxation is unlikely to be welcomed by Canadians
If a client had necessary spending plans and could increase their income, but chose instead to use costly debt, what would you tell them?
The International Monetary Fund is not impressed with the Canadian government’s lack of revenue raising to fund spending initiatives in the budget, believing that there should be further taxation beyond the controversial changes to capital gains tax which has annoyed groups including businesses and doctors, although a former CPPIB CEO says the changes should have happened immediately after the budget.
“The increase in the capital gains inclusion rate improves the tax system’s neutrality with respect to different forms of capital income and is likely to have no significant impact on investment or productivity growth,” the IMF’s Canada staff wrote in a newly published report. “Consideration could be given to other changes—such as an increase in the GST rate, while raising the GST credit to shield the poor—so as to deliver a tighter fiscal stance.”
Among other points highlighted in the report, the IMF staff welcomed the Bank of Canada’s recent interest rate cut given softer economic indicators and a resilient financial sector. However, they also called for tighter fiscal policy.
“Canada’s public debt and deficits remain low in international comparison, and the recent introduction of quantitative fiscal objectives is welcome. That said, fiscal policy should be tightened, both to support the Bank of Canada’s efforts to bring inflation back to target and to rebuild buffers appropriately used during the pandemic,” the report states.
Housing affordability
Prioritizing housing affordability is also noted: “If it is not addressed, local economies will face difficulties in attracting workers and businesses, and across Canada, homeownership will move further out of reach for younger generations.”
The report calls for action at a federal and local level to boots homebuilding including the reduction of red tape, rezoning for densification, and the use of public land, adding that “measures that inadvertently boost demand should be avoided, and the ban on non-resident housing purchases—a capital flow management measure—would better be replaced by a non-discriminatory tax on speculation.
The IMF staff report also commented on Canada’s carbon taxes, productivity, and the low labour market participation of women with young children.
