A Canadian economic institute believes it would be best for the government to scrap the tax
Ottawa would be better off without the capital gains tax, at least according to an economic note published by the Montreal Economic Institute (MEI).
While Ottawa has already overturned the planned increase in the inclusion rate of the capital gains tax, MEI believes it would be best for the government to scrap the capital gains tax, noting that such a tax is harmful.
MEI economist Mathieu Bédard said despite capital formation being one of the foundations of economic growth, investment in Canada has fallen by 18% since 2014.
Also Read: Ottawa's tax proposals not fair for businesses: study
"Now that the oil industry boom is behind us, it's obvious that Canada has a chronic problem. The capital gains tax reduces the availability of capital and makes it more expensive for companies. Who ends up paying the price? Workers in particular, through fewer jobs and lower wages," Bédard said.
More so, he said capital gains tax badgers innovation by reducing the appetite of investors for riskier start-ups.
Bédard said the abolition of capital gains could, in turn, encourage productivity, resulting in the improvement of the living standards of all Canadians.
He noted that each dollar of reduction of capital gains taxes would result in an economic gain of around $1.30.
"Several other countries have followed this path; why not us? New Zealand, Switzerland, and Hong Kong do not tax capital gains at all. In these places, positive effects from the absence of capital gains taxation have been documented," Bédard stressed.
For the economist, the paltry revenue the tax generates is not enough justification. In fact, the reductions in federal government tax revenues from its abolition would be $4.3 billion, or just 1.5% of its total revenues.
MEI CEO and president Michel Kelly-Gagnon said several other countries have come up with a way to deal with this and abolish the said tax.
"Common sense favours a reduction in this kind of tax, even its elimination. This tax does not generate a lot of revenue for the government, yet it is a major burden for our economy," he said.
He furthered, "There is no reason to believe that Canada could not do so as well in order to improve the standard of living of all Canadians."
Related stories:
How can clients adapt to Ottawa’s proposed tax changes?
Small businesses need a capital assist: IIAC head
While Ottawa has already overturned the planned increase in the inclusion rate of the capital gains tax, MEI believes it would be best for the government to scrap the capital gains tax, noting that such a tax is harmful.
MEI economist Mathieu Bédard said despite capital formation being one of the foundations of economic growth, investment in Canada has fallen by 18% since 2014.
Also Read: Ottawa's tax proposals not fair for businesses: study
"Now that the oil industry boom is behind us, it's obvious that Canada has a chronic problem. The capital gains tax reduces the availability of capital and makes it more expensive for companies. Who ends up paying the price? Workers in particular, through fewer jobs and lower wages," Bédard said.
More so, he said capital gains tax badgers innovation by reducing the appetite of investors for riskier start-ups.
Bédard said the abolition of capital gains could, in turn, encourage productivity, resulting in the improvement of the living standards of all Canadians.
He noted that each dollar of reduction of capital gains taxes would result in an economic gain of around $1.30.
"Several other countries have followed this path; why not us? New Zealand, Switzerland, and Hong Kong do not tax capital gains at all. In these places, positive effects from the absence of capital gains taxation have been documented," Bédard stressed.
For the economist, the paltry revenue the tax generates is not enough justification. In fact, the reductions in federal government tax revenues from its abolition would be $4.3 billion, or just 1.5% of its total revenues.
MEI CEO and president Michel Kelly-Gagnon said several other countries have come up with a way to deal with this and abolish the said tax.
"Common sense favours a reduction in this kind of tax, even its elimination. This tax does not generate a lot of revenue for the government, yet it is a major burden for our economy," he said.
He furthered, "There is no reason to believe that Canada could not do so as well in order to improve the standard of living of all Canadians."
Related stories:
How can clients adapt to Ottawa’s proposed tax changes?
Small businesses need a capital assist: IIAC head
