Each federal or provincial budget brings the issue of tax fairness to the forefront. The latest federal budget, tabled by Liberal Finance Minister Chrystia Freeland, is no exception to this rule, especially since it brings changes to the taxation of capital gains. As of June 25, the capital gains inclusion rate will increase from 50% to 66.7%, a measure only applying to gains over $250,000.
While we consider that this budget only offers “half measures”, we are surprised by the outcry against this initiative, which appears to us to be a simple and necessary fiscal catch-up. Certainly, the latest budget does not tackle tax evasion, nor does it initiate a shift towards a progressive tax. However, the changes it brings on the tax front will make it possible to increase the contribution of the better off to the public treasury, who have benefited from numerous tax privileges for several years.
The Quebec government has also decided to follow the federal government’s lead by announcing that it is also raising the wealth tax thresholds. From June, the profit made from the sale of a chalet, a plex or a second home will be taxed more. Quebec Finance Minister Eric Girard estimates that this increase will bring in around $3 billion over five years.
Are we overtaxing the rich? Reading and hearing certain commentators, one gets the impression that very unresponsible governments have decided to use “the money of the rich” to obtain the “votes of the poor”, sacrificing a part of the middle class in the process. . However, capital gains are mainly an income received by the wealthiest. Antoine Genest-Grégoire and Olivier Jacques, from the Research Chair in Taxation and Public Finance at the University of Sherbrooke, estimate that “82% of capital gains are generated by the richest 10% and 57% by the top 1%. As for the idea of taxing this source of income more, it is not new. It was even one of the recommendations of the Quebec Tax Review Commission, launched by the Couillard government and chaired by tax expert Luc Godbout, in 2015.
Thus, contrary to the assertion that the measures announced by Quebec and Ottawa target and penalize the middle class, these only concern approximately 40,000 people in all of Canada, or 0.13% of taxpayers. The capital gain on a primary residence is not affected, which means that only those who sell a second home, a cottage or a home used as a source of income will be affected. The argument about the middle class being “collateral damage” simply doesn’t hold water, nor does the argument about overtaxing the rich.
It is clear that federal and provincial social programs and services need to be funded. The extent and source of this funding will always be a matter of debate. This is why it is important to base reflection, deliberation and decisions on reliable figures and conclusive data. Four decades under the influence of neoliberalism, however, have allowed a discourse hostile to taxes and public action to take hold. This perspective has become, unsurprisingly, the economic discourse of the conservative and business-minded right, but, more surprisingly, of many liberals and even some progressives. It’s time to set the record straight.
Economists Jack Mintz and Stephen Richardson demonstrated in 1995 that the cumulative capital gains exemption had deprived the Canadian state of $6 billion between 1985 and 1991. During the 1990s, the taxable capital gain was increased to 75%, then reduced to 50% at the turn of the 2000s. Since then, the taxation of capital gains had remained in the blind spot of decision-makers and the subject had almost become taboo. The measure announced in the 2024 budget is altogether timid if we look back to the 1990s. The Parliamentary Director of the Federal Budget has also estimated that a return to an inclusion rate of 75% would generate revenues of 13 billion dollars per year, an amount three times higher than the expected revenue with the rate of 66.7%.
Remember that since 1980, the federal corporate tax rate has fallen by 60%. However, it is through taxes that the programs and services from which the population benefits are mainly financed. Quality programs and services mean tax grabs from the pockets of those who can afford them. The increase in the capital gains inclusion rate at the federal and provincial levels brings a little tax justice to a realm of privileges granted to the wealthiest for decades. And it is through tax justice that we can hope to bring back a little social justice in a context where inequalities are growing.