By Paul Vieira
OTTAWA--A coalition of top Canadian business lobby groups has called on Finance Minister Chrystia Freeland to scrap plans to raise capital-gains taxes next month, arguing this threatens to throttle efforts at lifting growth and reversing productivity declines.
In a letter sent Thursday morning, the business groups say the tax increase risks limiting economic opportunities for generations of Canadians by making the country "a less competitive, and less innovative nation."
Canada wants to increase the inclusion rate, or how much of a capital gain realized from an asset sale is subject to tax, starting on June 25. That rate is rising to 66% from 50%, and applies to all capital gains recorded by corporations and trusts. Individuals will face the higher inclusion rate on capital gains in excess of 250,000 Canadian dollars, or the equivalent of $182,000.
"At a time when we are already urgently struggling to reignite our nation's lagging productivity, increasing taxes on productive investments and throttling Canadian potential will have profound, long-lasting and potentially irreversible repercussions," the letter said. Canada's productivity has declined for three straight years, and per-capita gross domestic product has dropped for six straight quarters and sits at 2017 levels.
Among the letter's signatories are the Canadian Chamber of Commerce, the country's largest business lobby group; the Canadian Federation of Independent Business, which represents small- to mid-sized firms; the Canadian Manufacturers and Exporters; and the Canadian Venture Capital and Private Equity Association.
Freeland revealed the change in tax policy in the government's 2024 budget plan. The anticipated revenue from the tax increase is set to help the incumbent Liberals--struggling in nearly all public-opinion polls--finance new initiatives to help lower-income and younger Canadians, and keep the annual budget deficit steady at C$40 billion, or 1.4% of GDP.
Freeland, along with senior officials in the Liberal government, have defended the tax increase as a way to ensure fairness among generations, arguing younger Canadians feel disillusioned about their financial prospects.
"We are making Canada's tax system more fair--by ensuring that the very wealthiest pay their fair share," Freeland said of the tax-policy change.
In their letter, the business groups say Canada's tax system has become a "complicated web of carve-outs and caveats," and requires a much-needed overhaul. The groups were also critical of the Liberal government's looser fiscal policy. In the 2024 budget plan, government outlays excluding debt-financing charges are set to rise 6.7% from the previous year. The level of federal spending is 40% higher than prepandemic levels, even after the removal of pandemic-fueled stimulus measures.
"Our country must end its reliance on tax-and-spend politics, which is undermining innovation and growth to the detriment of both today's Canadians and future generations," the letter said.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
05-09-24 0614ET
