Budget 2024’s Tax on the ‘Rich’ Will Backfire, Say Economists

Economists Warn That Budget 2024’s Tax on the Wealthy Could Have Negative Consequences

April 17, 2024 TruthUSA

Finance Minister Chrystia Freeland announced in the 2024 federal budget that higher taxes on the wealthiest Canadians would contribute to funding significant spending initiatives. However, economists warn that the negative consequences of these tax increases may extend beyond the wealthy and could potentially result in decreased revenue for Ottawa.

Jake Fuss, the director of fiscal studies at the Fraser Institute, emphasized that the impacts of these tax hikes could affect many Canadians, not just the affluent. Some individuals could indirectly feel the effects, such as through disincentivizing investments due to the proposed higher tax on capital gains.

According to Fuss, the direct impact would be felt by a broader group of Canadians, as individuals apart from the wealthiest may have substantial capital gains from assets like cottages, businesses, or stocks. Under the new proposal, capital gains above $250,000 would be taxed at a higher rate.

Furthermore, Jack Mintz, a president’s fellow at the University of Calgary School of Public Policy, echoed similar concerns, noting that some of the wealthiest Canadians targeted by the tax increase could potentially find ways to avoid paying the higher taxes.

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Fuss also pointed out that the new tax measure would lead to changes in the way individuals handle transactions, as some might delay actions to avoid crossing the $250,000 annual threshold. Currently, individuals are taxed on 50% of their total capital gains, but under the new system, two-thirds of gains above $250,000 would be taxed.

If people find ways to evade the increased taxes, it could result in a revenue shortfall in a budget already relying on borrowing. The budget forecasts a $19.4 billion revenue increase over five years from the capital gains tax measure, starting in the fiscal year of 2024–25.

The budget highlights the importance of wealthier Canadians contributing more to support investments for future generations. However, economists caution that if the tax hikes deter investment, it could lead to consequences for all Canadians.

Productivity the ‘Number One Problem’

Moshe Lander, a senior economics lecturer at Concordia University, emphasized the critical issue of lagging productivity in Canada. This factor has far-reaching implications for the economy, affecting living standards and affordability.

Lander stressed the need for increased competition in various industries to enhance productivity levels. He cited examples like airlines, banks, and telecommunications as sectors that could benefit from improved competitiveness.

He also mentioned the merger of Rogers and Shaw, completed last year, which narrowed the industry’s competition. Lander suggested that legislative measures could have been included in the budget to foster a more competitive market.

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