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With capital gains change, the Liberals grasp the tax reform nettle again – CBC News

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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.

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Review finds no case for formal probe of Beijing’s activities under elections law

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OTTAWA – The federal agency that investigates election infractions found insufficient evidence to support suggestions Beijing wielded undue influence against the Conservatives in the Vancouver area during the 2021 general election.

The Commissioner of Canada Elections’ recently completed review of the lingering issue was tabled Tuesday at a federal inquiry into foreign interference.

The review focused on the unsuccessful campaign of Conservative candidate Kenny Chiu in the riding of Steveston-Richmond East and the party’s larger efforts in the Vancouver area.

It says the evidence uncovered did not trigger the threshold to initiate a formal investigation under the Canada Elections Act.

Investigators therefore recommended that the review be concluded.

A summary of the review results was shared with the Canadian Security Intelligence Service and the RCMP. The review says both agencies indicated the election commissioner’s findings were consistent with their own understanding of the situation.

During the exercise, the commissioner’s investigators met with Chinese Canadian residents of Chiu’s riding and surrounding ones.

They were told of an extensive network of Chinese Canadian associations, businesses and media organizations that offers the diaspora a lifestyle that mirrors that of China in many ways.

“Further, this diaspora has continuing and extensive commercial, social and familial relations with China,” the review says.

Some interviewees reported that this “has created aspects of a parallel society involving many Chinese Canadians in the Lower Mainland area, which includes concerted support, direction and control by individuals from or involved with China’s Vancouver consulate and the United Front Work Department (UFWD) in China.”

Investigators were also made aware of members of three Chinese Canadian associations, as well as others, who were alleged to have used their positions to influence the choice of Chinese Canadian voters during the 2021 election in a direction favourable to the interests of Beijing, the review says.

These efforts were sparked by elements of the Conservative party’s election platform and by actions and statements by Chiu “that were leveraged to bolster claims that both the platform and Chiu were anti-China and were encouraging anti-Chinese discrimination and racism.”

These messages were amplified through repetition in social media, chat groups and posts, as well as in Chinese in online, print and radio media throughout the Vancouver area.

Upon examination, the messages “were found to not be in contravention” of the Canada Elections Act, says the review, citing the Supreme Court of Canada’s position that the concept of uninhibited speech permeates all truly democratic societies and institutions.

The review says the effectiveness of the anti-Conservative, anti-Chiu campaigns was enhanced by circumstances “unique to the Chinese diaspora and the assertive nature of Chinese government interests.”

It notes the election was prefaced by statements from China’s ambassador to Canada and the Vancouver consul general as well as articles published or broadcast in Beijing-controlled Chinese Canadian media entities.

“According to Chinese Canadian interview subjects, this invoked a widespread fear amongst electors, described as a fear of retributive measures from Chinese authorities should a (Conservative) government be elected.”

This included the possibility that Chinese authorities could interfere with travel to and from China, as well as measures being taken against family members or business interests in China, the review says.

“Several Chinese Canadian interview subjects were of the view that Chinese authorities could exercise such retributive measures, and that this fear was most acute with Chinese Canadian electors from mainland China. One said ‘everybody understands’ the need to only say nice things about China.”

However, no interview subject was willing to name electors who were directly affected by the anti-Tory campaign, nor community leaders who claimed to speak on a voter’s behalf.

Several weeks of public inquiry hearings will focus on the capacity of federal agencies to detect, deter and counter foreign meddling.

In other testimony Tuesday, Conservative MP Garnett Genuis told the inquiry that parliamentarians who were targeted by Chinese hackers could have taken immediate protective steps if they had been informed sooner.

It emerged earlier this year that in 2021 some MPs and senators faced cyberattacks from the hackers because of their involvement with the Inter-Parliamentary Alliance on China, which pushes for accountability from Beijing.

In 2022, U.S. authorities apparently informed the Canadian government of the attacks, and it in turn advised parliamentary IT officials — but not individual MPs.

Genuis, a Canadian co-chair of the inter-parliamentary alliance, told the inquiry Tuesday that it remains mysterious to him why he wasn’t informed about the attacks sooner.

Liberal MP John McKay, also a Canadian co-chair of the alliance, said there should be a clear protocol for advising parliamentarians of cyberthreats.

This report by The Canadian Press was first published Sept. 17, 2024.

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NDP beat Conservatives in federal byelection in Winnipeg

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WINNIPEG – The federal New Democrats have kept a longtime stronghold in the Elmwood-Transcona riding in Winnipeg.

The NDP’s Leila Dance won a close battle over Conservative candidate Colin Reynolds, and says the community has spoken in favour of priorities such as health care and the cost of living.

Elmwood-Transcona has elected a New Democrat in every election except one since the riding was formed in 1988.

The seat became open after three-term member of Parliament Daniel Blaikie resigned in March to take a job with the Manitoba government.

A political analyst the NDP is likely relieved to have kept the seat in what has been one of their strongest urban areas.

Christopher Adams, an adjunct professor of political studies at the University of Manitoba, says NDP Leader Jagmeet Singh worked hard to keep the seat in a tight race.

“He made a number of visits to Winnipeg, so if they had lost this riding it would have been disastrous for the NDP,” Adams said.

The strong Conservative showing should put wind in that party’s sails, Adams added, as their percentage of the popular vote in Elmwood-Transcona jumped sharply from the 2021 election.

“Even though the Conservatives lost this (byelection), they should walk away from it feeling pretty good.”

Dance told reporters Monday night she wants to focus on issues such as the cost of living while working in Ottawa.

“We used to be able to buy a cart of groceries for a hundred dollars and now it’s two small bags. That is something that will affect everyone in this riding,” Dance said.

Liberal candidate Ian MacIntyre placed a distant third,

This report by The Canadian Press was first published Sept. 16, 2024

The Canadian Press. All rights reserved.

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Trudeau says ‘all sorts of reflections’ for Liberals after loss of second stronghold

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OTTAWA – Prime Minister Justin Trudeau say the Liberals have “all sorts of reflections” to make after losing a second stronghold in a byelection in Montreal Monday night.

His comments come as the Liberal cabinet gathers for its first regularly scheduled meeting of the fall sitting of Parliament, which began Monday.

Trudeau’s Liberals were hopeful they could retain the Montreal riding of LaSalle—Émard—Verdun, but those hopes were dashed after the Bloc Québécois won it in an extremely tight three-way race with the NDP.

Louis-Philippe Sauvé, an administrator at the Institute for Research in Contemporary Economics, beat Liberal candidate Laura Palestini by less than 250 votes. The NDP finished about 600 votes back of the winner.

It is the second time in three months that Trudeau’s party lost a stronghold in a byelection. In June, the Conservatives defeated the Liberals narrowly in Toronto-St. Paul’s.

The Liberals won every seat in Toronto and almost every seat on the Island of Montreal in the last election, and losing a seat in both places has laid bare just how low the party has fallen in the polls.

“Obviously, it would have been nicer to be able to win and hold (the Montreal riding), but there’s more work to do and we’re going to stay focused on doing it,” Trudeau told reporters ahead of this morning’s cabinet meeting.

When asked what went wrong for his party, Trudeau responded “I think there’s all sorts of reflections to take on that.”

In French, he would not say if this result puts his leadership in question, instead saying his team has lots of work to do.

Bloc leader Yves-François Blanchet will hold a press conference this morning, but has already said the results are significant for his party.

“The victory is historic and all of Quebec will speak with a stronger voice in Ottawa,” Blanchet wrote on X, shortly after the winner was declared.

NDP Leader Jagmeet Singh and his party had hoped to ride to a win in Montreal on the popularity of their candidate, city councillor Craig Sauvé, and use it to further their goal of replacing the Liberals as the chief alternative to the Conservatives.

The NDP did hold on to a seat in Winnipeg in a tight race with the Conservatives, but the results in Elmwood-Transcona Monday were far tighter than in the last several elections. NDP candidate Leila Dance defeated Conservative Colin Reynolds by about 1,200 votes.

Singh called it a “big victory.”

“Our movement is growing — and we’re going to keep working for Canadians and building that movement to stop Conservative cuts before they start,” he said on social media.

“Big corporations have had their governments. It’s the people’s time.”

New Democrats recently pulled out of their political pact with the government in a bid to distance themselves from the Liberals, making the prospects of a snap election far more likely.

Trudeau attempted to calm his caucus at their fall retreat in Nanaimo, B.C, last week, and brought former Bank of Canada governor Mark Carney on as an economic adviser in a bid to shore up some credibility with voters.

The latest byelection loss will put more pressure on him as leader, with many polls suggesting voter anger is more directed at Trudeau himself than at Liberal policies.

This report by The Canadian Press was first published Sept. 17, 2024.

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