In 2021, the richest 10% of the population in Canada owned 40.7% of total income and 57.7% of Canadian wealth. It is well known that the gap between the rich and the poor has been widening for more than 30 years. Purchasing power has stagnated since the 1980s. The neoclassical promise has been broken: gains in productivity benefit the owners of capital more, which encourages the concentration of wealth in the hands of the richest.
The inheritance tax disappeared in 1972 according to the recommendations of the Carter commission in order to make way for taxation on capital gains. Then, the inclusion rate for this rare form of taxation on Canadian wealth gradually eroded until the early 2000s… and since then, radio silence!
Today, Québec solidaire (QS) announced that under its government, a new tax on large estates would be proposed. Beyond the partisan quarrels, we have to admit that QS is the only party to have the courage to reopen the debate on the subject. Our absolute laissez-faire approach to the question of inheritance in Canada is fundamentally unfair, it maintains and accentuates the accumulation of wealth by a real class of heirs. Sitting in the sand as our governments have been doing for too many years is unacceptable.
But what does economics say?[…] First, it is well documented that the increase in inequalities acts as a brake on GDP growth. A 2015 study by the International Monetary Fund empirically demonstrated that income concentration hurts economic growth and that conversely, a 1% increase in the incomes of the poorest 20% would increase GDP growth by 0.4% . Enough to make our steadfast defenders of the myth of economic runoff drool! If social justice is not enough to justify the inheritance tax, we learn that there is also a potential gain in economic efficiency.
More recently, an OECD report stated that “well-designed inheritance taxes would raise government revenue and improve fairness, generating less efficiency and administrative costs than other taxes”.
In short, the economic literature has evolved since 1970, so it is time for our tax system to adapt as well. Inheritance tax is not a silver bullet to inequality, but it is certainly a step in the right direction. Remember that 24 out of 37 OECD countries already have some form of inheritance tax… What if taxing inheritance wasn’t such a far-fetched idea?