Prime Minister Justin Trudeau, Deputy Prime Minister and Minister of Finance Chrystia Freeland are joined by cabinet ministers for a photo before the tabling of the federal budget on Parliament Hill in Ottawa on April 16.Justin Tang/The Canadian Press
They’re doing it for you, millennials. And you, Gen Zers. The Liberal government is raising capital gains taxes for you. In the logic of this year’s budget, there was simply no other way.
Finance Minister Chrystia Freeland’s 2024 budget, grandly titled “Fairness for Every Generation,” is driven by the notion Canadians under 40 have a raw deal, and the only way to solve it is to tax the rich to pay for more spending.
Ms. Freeland’s recounting of the budget’s basic bargain was pretty much that simple: “The new revenues will make life cost less for millions of Canadians, particularly millennials and Gen Z,” she told reporters in a news conference.
The budget even had a section called “A fair chance for Millennials and Gen Z” that devoted $2.6-billion in new spending over the next five years for student loans and job training. The funny thing is that the budget is hiking taxes by more than eight times that amount – $21.9-billion over the same period.
At some point you have to suspect that it is not all about the 20- and 30-somethings.
There were indeed many measures in a $9-billion program to boost the housing supply that were framed as an effort to ease the pain of millennials. There was a $2-billion artificial intelligence fund framed as the economic future for Gen Zers, and a one-year, $1-billion extension of expanded student loans and grants.
But big sums were also devoted to defence, Indigenous education and child care, and there was a long list of other items.
In all, it amounted to $53-billion in additional spending over five years, and there was just no way to squeeze that in with Ms. Freeland’s promise to keep the deficit within defined bounds. That’s why they levied new taxes.
There was no hint that the Liberals ever thought for a moment there is any other way, that controlling spending might be an alternative to levying taxes.
Ms. Freeland pointed to plans to cut 5,000 people over four years from a public service that at last count numbered 368,000 as evidence of her fiscal responsibility. But she insisted, the big question for Canadians is whether the government needs to make more “investments.” Wrapping that in a package of generational fairness helped make the whole thing balance – politically, albeit not financially.
Someone has to pay and that’s going to be the people no one feels sympathy for: investors and corporations making a lot of money off capital gains on their assets. It will add up to a useful chunk of change – including an expected bump of $6.5-billion in 2024 driven largely by investors selling assets in the next two months, before the stiffer tax treatment takes effect in June.
The Liberals were at pains to note that measure – raising the capital gains inclusion rate from half to two-thirds on income over $250,000 – would affect only 0.13 per cent of individuals and about 12 per cent of corporations in any given year.
That’s not going to hurt Liberal support in opinion polls. Mr. Trudeau’s government came to power in 2015 on a promise to make the top one per cent pay more. People watching their rents and mortgage payments skyrocket aren’t going to cry for the top 0.13 per cent now. Making the rich pay is key to selling it as fairness.
The capital-gains tax increase effectively reversed the policy change made by another Liberal government a generation ago, in 2000, when then-finance minister Paul Martin cut the inclusion rate from two-thirds to half, arguing it would encourage risk-taking and investment.
In political terms, these tax revenues are cost-free money for a government that believes there’s always a need for more government.
But the tax hikes are a signal that discourages the private investment Canada is struggling to attract. They clash with government’s pledge to encourage economic growth and productivity, which, according to Ms. Freeland’s own budget, are key to creating future prosperity for Canadians – and for the millennials and Gen Zers that the Liberals are trying to woo.
Ms. Freeland shrugged off concerns that would have an impact on Canada’s competitiveness. For this Liberal government, there wasn’t any other way.