In the fall of 2021, the editors of the Canadian Tax Journal devoted several dozen pages to the “hotly debated” topic of capital gains.
On balance, the editors wrote, their selected contributors were in favour of raising the inclusion rate for capital gains — the share of an individual’s capital gains that are subject to income tax rates. But they acknowledged that putting such a change into practice would not be easy.
“Opposition to capital gains tax increases among affected taxpayers is apt to be vociferous,” Michael Smart and Sobia Hasan Jafry wrote in one of the featured papers, “precisely because such a reform would act like a lump sum tax that would be difficult or impossible for taxpayers to avoid in the long run by changing their behaviour.”
Whatever its exact causes or motivations, “vociferous” opposition to tax hikes may be as old as taxation itself. But the Liberals already have firsthand experience of how loud that opposition can get, having watched one set of reforms struggle to survive an onslaught of confusion and controversy in the summer of 2017.
Now they’re taking another swing at it — and one big question is whether they’re better prepared for the blowback this time.
WATCH: The capital gains tax changes, explained
Breaking down the capital gains tax changes
5 days ago
Duration 4:49
The federal government unveiled billions in spending in its 2024 budget, and to help pay for it all, it’s proposing changes to how capital gains are taxed. CBC’s Nisha Patel breaks down how it works and who will be affected.
If the Liberals are hoping to look reasonable and measured, they can at least point to the fact that they haven’t gone nearly as far as some wanted them to go.
In their 2001 paper, Smart and Hasan Jafry proposed increasing the inclusion rate from 50 per cent to 80 per cent for all capital gains. In her third budget, tabled last week, Finance Minister Chrystia Freeland proposed an inclusion rate of 67 per cent for capital gains of $250,000 or more.
In their 2021 analysis, Smart and Hasan Jafry pointed out that the wealthiest families benefited disproportionately from the preferential tax treatment afforded to capital gains (though there is some debate over exactly how disproportionately the benefits are distributed). That’s now a key aspect of the government’s argument.
“The government is asking the wealthiest Canadians to pay their fair share,” last week’s budget document said, adding that only about 0.13 per cent of Canadians would be affected by the change.
As Freeland noted, her changes also aren’t unprecedented. From 1990 to 2000, the inclusion rate was 75 per cent for all capital gains. Freeland is also promising a special carve-out aimed at entrepreneurs.
“There are a lot of reasons why the inclusion rate should go up for capital gains,” Smart said in an interview this week.
For one thing, Smart argues, “it’s fairer for all Canadians if taxpayers with capital gains pay the same rates of tax as the rest of us do right now.” Also, he says, “it’s better for the economy if every investor is paying the same tax rate on everything she or he invests in,” pointing to differences in the way dividends and capital gains are taxed.
The fight over what these changes will mean
While condemning the budget, Pierre Poilievre’s Conservatives have been noticeably quiet on the issue of capital gains. That might be because they sense — correctly — that the Liberals would be happy to accuse them of supporting tax breaks for the rich.
For the time being, other voices are filling the void — including doctors, who came forward with their own concerns this week. The technology sector has been the loudest in its objections. The Council of Canadian Investors has sponsored an open letter that has now been signed by hundreds of tech executives.
WATCH: CMA president slams changes to capital gains tax
CMA president ‘deeply concerned’ about capital gains tax change
2 days ago
Duration 9:00
Canadian Medical Association president Dr. Kathleen Ross tells Power & Politics that she fears changes to the capital gains tax will make recruitment and retention of physicians more difficult at ‘a time where the health force is beleaguered, mothballed and really struggling to deliver on services to Canadians.’
In an op-ed for the National Post, the council’s president, Benjamin Bergen, warned that the changes would hurt Canada’s economic “vibes.” Specifically, he argued that a higher inclusion rate would discourage business investment.
“Capital gains are taxed at a different rate because they are taxes on investment,” he wrote. “Every investment comes with risk … [t]he tax code takes this into account.”
But other figures in the investment community have come forward to say the backlash is confused and unwarranted.
There does not seem to be a clear consensus on the economic impact of changes to the capital gains tax. In a paper published last year, the economist Jonathan Rhys Kesselman wrote that “the overall impact of existing and increased capital gains taxes on the economy’s efficiency and growth are mixed and not easily quantified.”
“When the gains inclusion rate was raised to 75 per cent in 1990 for nearly a decade, adverse economic impacts were not observed, though this is at best weak evidence,” Kesselman wrote. “Contrary to common claims about higher taxes on gains, some impacts would be economically favourable, and others that might be adverse could be mitigated through appropriate concomitant reforms.”
LISTEN: Tech entrepreneurs break down federal budget’s impacts on their sector
All in a Day13:14Three tech entrepreneurs break down impact of federal budget on their sector
Ottawa tech pros want the federal government to reconsider capital gains changes that, they say, can scare investors and jeopardise business.
It might be fair to assume the change will have some downside. But every policy choice involves a trade-off.
In an email this week, University of Calgary economist Trevor Tombe — who argues it makes sense to hike taxes on capital gains — wrote that while it would not be controversial to suggest the capital gains changes will have some kind of negative effect, “all policy choices come with costs and benefits, so we also have to then compare the costs to the benefits of the government’s spending choices.”
What the Liberals might have learned from 2017
Compared to the tax fight of 2017 — when the Liberals sought to change the rules on private incorporation — the government has been far more explicit and purposeful this time about connecting the tax changes to new spending proposals, particularly those related to ensuring that younger Canadians can find affordable places to live.
“I understand for some people this might cost more if they sell a cottage or a secondary residence, but young people can’t buy their primary residences yet,” Prime Minister Justin Trudeau said Tuesday.
In total, the changes are projected to produce $19.4 billion in additional revenue for the federal government over five years. In her budget speech, Freeland connected asking wealthy Canadians to pay more with federal programs to provide dental care, school lunches and free contraception.
The goal of reducing income inequality might be worthy in and of itself, but it’s more abstract than the tangible things the Liberals are pointing to now.
An internal review conducted by the Finance Department after the tax storm of 2017 concluded that the government had been slow to respond to concerns and criticism and that there was a “need to more rapidly adjust communications strategies and messaging to effectively address misconceptions.” Scott Clark, a former senior finance official, observed at the time that there were no “winners” — people who would benefit from the changes — to whom the federal government could point.
The early returns might suggest the government learned some things from the 2017 experience. For one thing, Freeland openly acknowledged from the outset that some people were likely going to be upset.
But if 2017 is any guide, the opposition is unlikely to pass quickly or quietly.
The New Brunswick Liberal Party has won a majority government, and Susan Holt will become the first woman to lead the province.
Here’s the latest from election night. All times are ADT.
10:15 p.m.
The results of the New Brunswick election are in, and with virtually all of the ballots counted, the Liberals won 31 seats out of 49.
The Progressive Conservatives won 16 seats.
The Green Party won two.
Voter turnout was about 66 per cent.
—
10 p.m.
Prime Minister Justin Trudeau has congratulated New Brunswick Liberal Leader Susan Holt for her party’s victory in the provincial election.
Trudeau says on the X platform he’s looking forward to working with Holt to build more homes, protect the country’s two official languages, and improve health care.
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9:48 p.m.
During her victory speech tonight in Fredericton, New Brunswick premier-designate Susan Holt thanked all the women who came before her.
Holt will become the first woman to lead the province after her party won a majority government in the New Brunswick election.
The Liberals are elected or leading in 31 of 49 ridings.
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9:30 p.m.
Blaine Higgs says he will begin a transition to replace him as leader of the Progressive Conservatives.
After being in power for six years, the Tories lost the election to the Liberals.
Higgs, who lost his seat of Quispamsis, says, “My leadership days are over.”
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9:17 p.m.
The Canadian Press is projecting that Blaine Higgs, leader of the Progressive Conservative Party of New Brunswick since 2016, has lost in the riding of Quispamsis.
Higgs, 70, has been premier of New Brunswick since 2018, and was first elected to the legislature in 2010.
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8:45 p.m.
When asked about the election results, Progressive Conservative chief of staff Paul D’Astous says that over the last 18 months the party has had to contend with a number of caucus members who disagreed with its policy.
D’Astous says the Tories have also had to own what happened over the last six years, since they came to power in 2018, adding that the voters have spoken.
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8:39 p.m.
The Canadian Press is projecting that David Coon, leader of the New Brunswick Green Party, has won the riding of Fredericton Lincoln.
Coon, 67, has been leader of the party since 2014, the year he was first elected to the legislature.
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8:36 p.m.
The Canadian Press is projecting that the New Brunswick Liberal Party has won a majority government in the provincial election.
Party leader Susan Holt will become the first woman premier in the province’s history.
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8:20 p.m.
Early returns show a number of close races across the province, with the Liberals off to an early lead.
Liberal campaign manager Katie Davey says the results will show whether party leader Susan Holt, a relative newcomer, was able to capture the attention and trust of the people of New Brunswick.
Davey says she believes voters have welcomed Holt and her message, which focused on pocketbook issues, especially health care.
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8 p.m.
Polls have closed.
Eyes will be on a number of key ridings including Fredericton South-Silverwood, where Liberal Leader Susan Holt is vying for a seat; Saint John Harbour, which has been competitive between the Tories and Liberals in recent elections; and Moncton East, a redrawn Tory-held riding that the Liberals have targeted.
At dissolution, the Conservatives held 25 seats in the 49-seat legislature. The Liberals held 16 seats, the Greens had three, there was one Independent and there were four vacancies.
This report by The Canadian Press was first published Oct. 21, 2024.
FREDERICTON – A look at Susan Holt, premier-designate and leader of the New Brunswick Liberal party.
Born: April 22, 1977.
Early years: Raised in Fredericton, she attended Queen’s University in Kingston, Ont., and then spent a year in Toronto before moving abroad for three years, spending time in Australia and India.
Education: Earned a bachelor of arts in economics and a bachelor of science in chemistry from Queen’s University.
Family: Lives in Fredericton with her husband, Jon Holt, and three young daughters.
Hobbies: Running, visiting the farmers market in Fredericton with her family every Saturday.
Before politics: CEO of the Fredericton Chamber of Commerce, CEO of the New Brunswick Business Council, civil servant, business lobbyist, advocate, consultant and executive with an IT service company that trains and employs Indigenous people.
Politics: Worked as an adviser to former Liberal premier Brian Gallant. Won the leadership of the provincial Liberal party in August 2022 and was elected to the legislature in an April 2023 byelection.
Quote: “We don’t take it lightly that you have put your trust in myself and my team, and you have hope for a brighter future. But that hope I know is short-lived and it will be on us to deliver authentically, on the ground, and openly and transparently.” — Susan Holt, in her speech to supporters in Fredericton after the Liberals won a majority government on Oct. 21, 2024.
This report by The Canadian Press was first published Oct. 21, 2024.
FREDERICTON – New Brunswick voters have elected a Liberal majority government, tossing out the incumbent Progressive Conservatives after six years in power and handing the reins to the first woman ever to lead the province.
Liberal Leader Susan Holt is a relative newcomer to the province’s political scene, having won a byelection last year, eight months after she became the first woman to win the leadership of the party.
The Liberals appeared poised to take 31 of 49 seats to the Conservatives’ 16 and the Greens two.
Holt, 47, led the Liberals to victory after a 33-day campaign, thwarting Blaine Higgs’s bid to secure a third term as Tory premier.
The Liberal win marks a strong repudiation of Higgs’s pronounced shift to more socially conservative policies.
Higgs, meanwhile, lost in his riding of Quispamsis. In a speech to supporters in the riding, he confirmed that he would begin a leadership transition process.
As the Liberals secured their majority, Green Party Leader David Coon thanked his supporters and pledged to continue building the party, but he then turned his sights on the premier. “One thing is for sure,” he told a crowd gathered at Dolan’s Pub in Fredericton, “we know that Blaine Higgs is no longer the premier of this province.”
The election race was largely focused on health care and affordability but was notable for the remarkably dissimilar campaign styles of Holt and Higgs. Holt repeatedly promised to bring a balanced approach to governing, pledging a sharp contrast to Higgs’s “one-man show taking New Brunswick to the far right.”
“We need a government that acts as a partner and not as a dictator from one office in Fredericton,” she said in a recent interview with The Canadian Press.
Higgs focused on the high cost of living, promising to lower the provincial harmonized sales tax by two percentage points to 13 per cent — a pledge that will cost the province about $450 million annually.
Holt spent much of the campaign rolling out proposed fixes for a health-care system racked by a doctor shortage, overcrowded emergency rooms and long wait-times. A former business advocate and public servant, she promised to open 30 community health clinics across the province by 2028; remove the provincial sales tax from electricity bills; overhaul mental health services; and impose a three per cent cap on rent increases by 2025.
The 70-year-old Tory leader, a mechanical engineer and former Irving Oil executive, led a low-key campaign, during which he didn’t have any scheduled public events on at least 10 days — and was absent from the second leaders debate on Oct. 9.
Holt missed only two days of campaigning and submitted a 30-page platform with 100 promises, a far heftier document than the Tories’ two-page platform that includes 11 pledges.
When the election was called on Sept. 19, the Conservatives held 25 seats in the 49-seat legislature. The Liberals held 16 seats, the Green Party had three, there was one Independent and four vacancies. At least 25 seats are needed for a majority.
Higgs was hoping to become the first New Brunswick premier to win three consecutive elections since Liberal Frank McKenna won his third straight majority in 1995. But it was clear from the start that Higgs would have to overcome some big obstacles.
On the first day of the campaign, a national survey showed he had the lowest approval rating of any premier in the country. That same morning, Higgs openly mused about how he was perceived by the public, suggesting people had the wrong idea about who he really is.
“I really wish that people could know me outside of politics,” he said, adding that a sunnier disposition might increase his popularity. “I don’t know whether I’ve got to do comedy hour or I’ve got to smile more.”
Still, Higgs had plenty to boast about, including six consecutive balanced budgets, a significant reduction in the province’s debt, income tax cuts and a booming population.
Higgs’s party was elected to govern in 2018, when the Tories formed the province’s first minority government in almost 100 years. In 2020, he called a snap election — marking the first province to go to the polls during the COVID-19 pandemic — and won a slim majority.
Since then, 14 Tory caucus members have stepped down after clashing with the premier, some of them citing what they described as an authoritarian leadership style and a focus on conservative policies that represented a hard shift to the right.
A caucus revolt erupted last year after Higgs announced changes to the gender identity policy in schools. When several Tory lawmakers voted for an external review of the change, Higgs dropped dissenters from cabinet. A bid by some party members to trigger a leadership review went nowhere.
Higgs has also said a Tory government would reject all new applications for supervised drug-consumption sites, renew a legal challenge against the federal carbon pricing scheme and force people into drug treatment if authorities deem they “pose a threat to themselves or others.”
This report by The Canadian Press was first published Oct. 21, 2024.
