Deputy Prime Minister Chrystia Freeland, right, greets Gabriel Roy, centre and Guillaume Dagher, cofounders of new business startup Redfroglab Inc., an urban modular farm in Montreal, on April 22.Christinne Muschi/The Canadian Press
David Moscrop is a writer and political commentator. He is the author of Too Dumb for Democracy and a Substack newsletter.
It’s a rare day in Canada that sees overt debate about class and power. But after Finance Minister Chrystia Freeland released her latest budget, that’s apparently what we got.
The triggering element wasn’t the deficit, the debt or new program spending. It was an increase in the capital-gains tax inclusion rate to 67 per cent from 50 per cent for businesses and for personal investment income above $250,000, a move that will generate $20-billion in tax revenue in the next five years.
After the budget, facing much backlash from the business community, Ms. Freeland said something I haven’t heard her say before: The tax changes were part of keeping the wheels of democracy turning.
“If we want our democracy to work,” she said in an interview with The Logic, “democracy has to deliver on that essential social contract. And the social contract is, it delivers a good life for the middle class.”
Ms. Freeland didn’t elaborate, but it’s not hard to see what she meant.
Setting aside the critique that a just social contract would work for everyone, especially the poor and marginalized, who would no longer be either, the broader point is obvious – if people feel like they’re being ripped off, like they’re not getting a fair share in return for their labour and their commitment to more or less following the rules, then social, political and economic bonds will begin to break down.
The Liberals have been expressly focusing on “fairness” with this budget, but they have yet to put it as explicitly as Ms. Freeland. It’s as if they have finally noticed their tanking political fortunes and the early stages of a coming pitchforks-and-torches-at-dusk movement as Canadians struggle to afford their rent or mortgage, groceries and gas while rising inequality leaves so many behind.
The tax change does implicitly recognize class distinctions in Canada, and tacitly puts forth that the rich simply aren’t contributing sufficiently to building a country that respects and cares for all its people.
Now, Ms. Freeland has said the quiet part out loud.
She has a point. Wealth is generated socially. No one is self-made. Every entrepreneur, every successful businessperson, relies on some combination of workers, government, and state programs and institutions to become successful. Wealth comes from the many.
When those who are shut out of that success no longer have their needs met, particularly essential needs such as shelter and food, they have no reason to respect democratic or any other boundaries.
Extreme cases of economic and political inequality and repression may lead to revolt, even revolution. The French Revolution, the uprisings of the 1830s in Europe, the Russian Revolution, the Chinese Revolution, the Cuban Revolution and the Arab Spring remind us that for as long as there have been countries, there has been the possibility of upheaval.
Canada isn’t on the brink of revolution, but social and political turmoil are simmering concerns that indicate this country is failing millions of its people.
A recent report from the RCMP warned of growing and overlapping crises – climate, affordability, geopolitical – that pose a growing threat to order and stability. You might say that’s just cops being cops, but their concern tracks with a long and well-established history around the world that sees turmoil as a slowly-then-all-at-once affair. We are wrong to think it can’t happen here.
In that context, the budget’s tax changes are relatively small.
It’s not exactly the stuff of socialist revolution to boost the inclusion rate only for individuals making over a quarter-million in capital gains – not to mention that on the business side it was accompanied by the now-increased lifetime exemption limit of $1.25-million, indexed to inflation, and subject to a special tax break for entrepreneur-founders.
Moreover, the tax change will likely not drive away entrepreneurs and stifle innovation. Canada’s private sector already has a weak research-and-development commitment and that has nothing to do with capital-gains taxes. Even if we accept the premise that tax policy has a correlation with innovation, the country remains a tax-competitive state compared with its peers, including the United States.
I’d say that redistribution from the wealthy to the rest is morally right and just, given that wealth is socially created by the many. But if you don’t buy that, then consider the pragmatic argument: It’s also the inevitable cost of maintaining a stable, functional democracy.