Deputy Prime Minister and Finance Minister Chrystia Freeland arrives to a cabinet meeting on Parliament Hill in Ottawa on April 16.Sean Kilpatrick/The Canadian Press
William O’Connell is a doctoral candidate at the University of Toronto’s department of political science.
The 2024 budget includes $52.9-billion in new spending and loan programs and a commitment to not raise the deficit. That means effective tax increases, this time on the wealthiest 0.13 per cent of Canadians and a small number of corporations.
These are welcome and necessary changes. The spending programs outlined in the budget are intended to address the numerous policy crises facing the government. New housing needs to be built. New infrastructure needs to be developed. Provincial health care systems are overburdened and underfunded. Expanding access to lifesaving medication is long overdue. Our commitments to our NATO allies are more important than ever. Inflation has wreaked havoc on the pocketbooks of poor and middle-class Canadians.
No doubt some of these crises are this government’s own making. Many are rightly concerned that such spending will fan the flames of inflation. But austerity will only make these problems worse, as would adding billions to a growing level of national debt. Instead, the government can and should finance this spending through contributions from those who can afford it. They estimate these modest increases will generate $21-billion in revenue over the next five years.
The portion of capital gains that is taxable is set to go up for some. The Canadians affected are those who earn capital gains over $250,000 annually. The government estimates this is about 0.13 per cent of Canadians, with an average income of $1.4-million. These are the Canadians who have been harmed the least by inflation, who benefit the most from unattainable housing prices and unaffordable rents, who can and do pay for private health care, and who do not rely on public transit to commute to work. These are not privileges afforded to most of the other 99.87 per cent. We have a progressive tax system for a reason, and it is to ensure those who have attained or inherited these privileges do not pull the ladder up behind them.
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This tax is sensible when you consider that those at the very top end of the scale generate nearly half of their income through investment. These changes ensure those individuals are not paying a lower effective income tax rate than middle-class Canadians whose income comes mostly from wages. The tax will also apply to corporations, though only 12.6 per cent of Canadian corporations generate any capital gains. Again, these are typically the largest and most profitable companies.
David Dodge – former governor of the Bank of Canada – in a recent interview said this budget is likely to be the “worst in decades” and that these tax increases will “slow down investment which is going to raise Canadians’ standard of living over time.” These views are based on the “trickle-down theory” of economics, which suggests that the wealthy reinvest their savings which pays dividends for society through job creation. A rising tide lifts all boats.
This view is wrong and dangerous. A gradual erosion of the tax base in Canada, the United States, the United Kingdom and elsewhere based on these ideas has been occurring since the 1980s. In that time, citizens in these countries have seen stagnant wages, crumbling infrastructure, a rising cost of living and a massive expansion in income inequality. Plenty of new wealth has been generated but little, if any of it, has trickled down.
Instead of doubling down on failed ideas, we need a government willing to make tough decisions. No one likes tax increases, but they are necessary if we want the government to deliver the high-quality services Canadians deserve and demand. It is clear that private investment is not going to build the housing we desperately need. Nor will it staff our hospitals, fund our public transit or deliver lifesaving medication. Instead, the government has to do it, and the wealthiest Canadians and largest corporations will have to pay for it.