Bill Morneau criticizes Freeland’s budget as a threat to investment and economic growth Achi-News

Finance Minister Chrystia Freeland’s predecessor, Bill Morneau, says there was talk of increasing the capital gains tax when he was in office — but he opposed such a change because he feared it would prevent investment from companies and job creators.

He said Canada can expect that investment drought now, in response to a federal budget that targets high-end capital gains for a tax hike.

“This was very clearly something that we, while I was there, opposed. We opposed it for a very specific reason – we were worried about the country’s growth,” he said in a post-budget Q&A session with KPMG, one of the country’s major accounting firms.

Morneau, who served as Prime Minister Justin Trudeau’s finance minister from 2015 to 2020 before leaving after reports of a rift, said Wednesday that Freeland is moving to raise the inclusion rate from half to two-thirds on capital gains over $250,000 to individuals, and on all returns to corporations and trusts, “clearly negative to our long-term goal, which is growth in the economy, productive growth and investments.”

Morneau said the wealthy, business owners and corporations – the people most likely to face a higher tax burden as a result of Freeland’s change – will think twice about investing in Canada because they are going to make less money on their investments.

“We have created a disincentive and that is very difficult. I think we must always recognize that any measure that creates a disincentive to invest not only affects us within the country but also affects foreign investors who are looking at our country,” he said.

“I don’t think there’s any way to sugar coat it. It’s a challenge. It’s probably very upsetting for a lot of investors.”

KPMG accountants on hand for Morneau’s comments said they have already received calls from some clients who are concerned about how the capital gains changes will affect their investments.

Praise from progressives

While Freeland’s move to tax the affluent to pay for new spending caught heat from wealthy businessmen like Morneau, and from the Canadian Chamber of Commerce, progressive groups said they were pleased with the change.

“We appreciate moves to increase taxes on the wealthiest Canadians and profitable corporations,” said the Canadian Labor Congress.

“We’ve been calling on the government to fix the unfair capital gains tax break for a decade,” said Katrina Miller, executive director of Canadians for Tax Fairness. “Today, we are pleased to see them taking action and reducing the tax gap between wage earners and wealthy investors.”

“This is how Canada’s housing, pharmacare and disability benefits are given. If this is the government’s response to spending concerns, let’s bring it on. It is high time we looked at Canada’s revenue problem,” said the Canadian Center for Policy Alternatives.

The capital gains tax change was proposed by Freeland as a way to make the tax system fairer – especially for millennials and Generation Z Canadians who face falling behind their parents’ and grandparents’ economic status and grandparents.

“We are making Canada’s tax system fairer by ensuring that the very wealthiest pay their fair share,” Freeland said Tuesday after presenting her budget in Parliament.

The capital gains tax, which the government says will raise about $19 billion over five years, is also being introduced as a way to help pay for the government’s ambitious housing plan.

The scheme is aimed at young voters who have had trouble buying a home. Average house prices in Canada are among the highest in the world and interest rates are at a 20-year high.

Tuesday’s budget document says some wealthy people who make money from asset sales and dividends — instead of income from a job — may face a lower tax burden than working and middle-class people.

Morneau, who comes from a wealthy family and is married to another, is on the board of directors of CIBC and Clairvest, a private equity management firm that manages about $4 billion in assets.

According to government data, only 0.13 per cent of Canadians – people with an average income of about $1.4 million a year – are expected to pay more on their capital gains as a result of this change.

But there is also a chance that fewer wealthy people will pay more as a result of the change.

Capital gains simply happen when you sell a particular property for more than you paid for it.

Although capital gains from the sale of a main residence will remain untaxed, the tax change could affect the sale of cottages and other investment properties, as well as stocks and mutual funds sold for a profit.

A cottage bought years ago and sold for a gain of more than $250,000 would see part of the gain taxed at the new higher rate.

But there is some protection for people who sell a small business or farming or fishing property — the lifetime capital gains exemption increases by about 25 percent to $1.25 million for those taxpayers.

Freeland said Tuesday that she anticipates some blowback.

“I know many voices will be raised in protest. Nobody likes to pay more tax, even – or maybe especially – those who can afford it the most,” he said.

“Tax policy is not only, or mainly, the province of accountants or economists. It belongs to all of us because this is how we decide what kind of country we want to live in and what kind of country we want to build.”

Morneau received little praise for what his successor included in her fourth budget.

Morneau said Canada’s GDP per capita is declining, growth is limited and productivity is lagging behind other countries – making the country as a whole less wealthy than it was.

Canada has a growth problem, Morneau warns

The government is more interested in introducing costly new social programs than introducing measures that will reverse some of the worrying national wealth trends, he said.

“Canada is not growing at the pace we need to grow and if you can’t grow the size of the pie, it’s not easy to figure out how to share the profits,” he said.

“You think about that first before adding new programs and the government has done exactly the opposite.”

The United States has a “dynamic investment culture,” something that has boosted economic growth and kept unemployment at decades-low levels, Morneau said. Canada doesn’t have that luxury, he said.

He said Freeland has not done enough to curb the size of the federal government, which has grown on Trudeau’s watch.

The deficit is now about double what it was when he left office, Morneau noted.

“Not enough was done to reduce spending,” he said, while offering muted praise for the government’s decision to focus so much of its spending on the housing dilemma. “The priority was appropriate.”

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