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“99.87 per cent of Canadians will not pay a cent more,” the prime minister said this week, referring to the budget announcement that his government will raise the inclusion rate on capital gains tax in June.

The move will be limited to 40,000 wealthy taxpayers. “We’re going to make them pay a little more,” Justin Trudeau said.

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But it is hard to see how that number can be true when the budget document also says that 307,000 corporations will also be caught in the dragnet which raises the inclusion rate on capital gains to 66 per percent of 50 percent.

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Many of those corporations hold companies founded by professionals and small business owners who rely on their portfolios for their retirement.

The budget offers an example of the nurse earning $70,000 who faces a combined federal-provincial marginal rate of 29.7 per cent on his income. “By comparison, a wealthy individual in Ontario with an income of $1 million would face a marginal rate of 26.86 per cent on their capital gains,” he said.

Proponents of the policy argue that the change improves the efficiency and fairness of the tax system, meaning that capital gains are now taxed at a similar level to dividends, interest and paid income. The Department of Finance is a keen supporter of this view, which should have set alarm bells ringing on the political side.

That doesn’t mean it isn’t a valid argument. But against it you could present the counterpoint that capital gains tax is a form of double taxation, with the income already taxed at the individual and corporate level, which explains why the inclusion rate is not 100 per cent .

The prospect of capital gains is an incentive to invest especially for people who, unlike wage earners, usually do not have pensions or other employment benefits.

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That was acknowledged by Bill Morneau, Trudeau’s former finance minister, who said that increasing the capital gains rate had been proposed when he was in politics but that he opposed the proposal.

Morneau criticized the new tax hike as “a disincentive to invest… I don’t think there’s any way to sugar coat it.”

Regardless of the high-minded policy explanations put forward for neutrality in the tax system, it is clear that the impetus for the tax increase was the need to raise revenue from a government that was stuck with spending, and to engaging in wedge politics for one. with a popularity problem.

The most pressing question at the moment is: how many people are affected – or, just as importantly, think they might be affected?

One recent poll by Leger said 78 per cent of Canadians would support a new tax on people with wealth over $10 million.

But what about those regulars who stand to make a once-in-a-lifetime bargain by selling the family cottage? We will need to wait a few weeks before it becomes clear how many people feel they could be affected.

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The numbers supplied to Trudeau by the Department of Finance suggest they have struck taxation gold: pulling the most feathers ($21.9 billion in new revenue over five years) with the least amount of hiss (affecting just 0.13 per cent of taxpayers).

The concern for Trudeau and Finance Minister Chrystia Freeland is that Finance has been wrong before.

Political veterans remember former Conservative finance minister Jim Flaherty’s about-face in 2007, when he was forced to drop a proposal to eliminate the ability of Canadian companies to deduct the interest costs on money they borrowed to expand overseas.

“Tax officers had grossly underestimated the number of taxpayers affected in terms of corporations,” said one person who was there, pointing out that such miscalculations tend to happen when Finance has been pushing policy. specific for years.

The Trudeau government has some experience of this phenomenon, having had to reverse itself after introducing a range of measures in 2017, aimed at preventing professionals from incorporating in order to pay less tax. It was a defensible public policy objective but the blowback from small business owners and professionals who felt they were being unfairly labeled tax cheats led to an unprecedented retreat.

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Speaking after the budget was presented, Freeland was undeterred by the possibility of a blowback. “No one likes to pay more tax, even – or perhaps more especially – those who can afford it the most,” he said.

It would best hope that such wisdom is justified: failure to raise the sums promised will blow a hole in its budget and break free from its fiscal anchors of declining deficits and a debt-to-GDP ratio. i-GDP is collapsing.

That probably won’t be apparent for a year or two: the government predicted $6.9 billion in capital gains revenue will be recorded this financial year, largely because the implementation date has been pushed back to the end of June . We are likely to see a flow of transactions before then, so that investors can sell before the inclusion rate rises.

After that, you can imagine that asset sales will be reduced, especially if the Conservatives promise to lower the rate again (although in that respect, it was clear during question period this week, that not one Conservative raised the a new tax increase of $21 billion).

The calculated nature of the timing matches the fearful nature of the narrative: presenting blatant revenue grabbing as a principled battle for “fairness.” The move has the added attraction of inflicting pain on the top earners, a desirable goal in itself for a deeply progressive government that regards wealth creation as a crime that should be punished.

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Trudeau’s biggest problem is that few voters still associate him with principles, especially after he sold his own climate policy with the home heating oil exemption.

The tax increase marks a shift inspired by opinion polls showing that Canadians prefer any new taxes to affect only the people who are richer than them.

Success or failure may depend on the fact that the number of Canadians not affected is close to the number of 99.87 per cent provided by the Department of Finance.

History suggests that could be a shaky foundation to build a budget on.

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