According to the , the Trudeau government plans to increase the inclusion rate from 50 per cent to 66.7 per cent on capital gains over $250,000 for individuals and on all capital gains realized by corporations and trusts. Unfortunately, this tax hike will be the final nail in the coffin for business investment in sa国际传媒, which likely means even harder economic times ahead.
sa国际传媒 already faces a business investment crisis. From 2014-22, inflation-adjusted total business investment (in plants, machinery, equipment and new technologies but excluding residential construction) in sa国际传媒 declined by $34 billion. During the same period, after adjusting for inflation, business investment declined by a total of $3,748 per worker – from $20,264 per worker in 2014 to $16,515 per worker in 2022.
While business investment has declined in sa国际传媒 since 2014, in other countries, including the United States, it’s continued to . This isn’t a post-COVID problem – this is a sa国际传媒 problem.
And Canadians should be worried. Businesses investment is key for strong economic growth and higher living standards because when businesses invest in physical and intellectual capital they equip workers with the tools and technology (e.g. machinery, computer programs, artificial intelligence) to produce more and provide higher quality goods and services, which fuels innovation and higher productivity. And as firms become more efficient and increase profits, they’re able to pay higher wages, which is why business investment remains a key factor for higher incomes and living standards.
The Trudeau government’s policies – increased regulation, particularly in the energy and mining sectors (which makes sa国际传媒 a relatively unattractive place to do business), higher and uncompetitive taxes, and massive federal deficits (which imply future tax increases) – have damaged business investment.
Unsurprisingly, weak business investment has correlated with a weak economy. In the fourth quarter of 2023, real economic growth per person ($58,111) officially fell below 2014 levels ($58,162). In other words, Canadian living standards have completely stagnated. In fact, over the last decade economic growth per person has been the weakest since the 1930s.
Instead of helping fix the problem, the Trudeau government’s capital gains tax hike will further damage sa国际传媒’s economy by reducing the return on investment and encouraging an exodus of capital from the country. Indeed, are among the most economically damaging forms of taxation because they reduce the incentive to invest.
Once again, the Trudeau government has enacted a policy that will deter business investment, which sa国际传媒 desperately needs for strong economic growth. The key takeaway for Canadians? Barring a change in policy, you can expect harder times ahead.
Tegan Hill and Jake Fuss are analysts with the Fraser Institute.
