Canadian Entrepreneurs Sound Alarm Over Budget’s Tax Hike

In a swift reaction to the federal government’s newly unveiled budget, a chorus of Canadian entrepreneurs and investors is raising alarm over the proposed expansion of taxes on the wealthy. Criticizing the move as detrimental to innovation and economic growth, they caution that it could trigger a brain drain and exacerbate Canada’s productivity challenges.

Finance Minister Chrystia Freeland’s announcement in the 2024 budget to raise the inclusion rate of the capital gains tax from 50 per cent to 67 per cent for businesses and trusts has sparked widespread concern. This measure, estimated to generate approximately $19 billion in additional revenue, targets individuals with assets over $250,000 and could impact 40,000 individuals and 307,000 companies across Canada.

With companies already grappling with various challenges, including a high-interest rate environment, the potential chilling effect of the tax policy on growth prospects looms large.

Benjamin Bergen, president of the Council of Canadian Innovators (CCI), emphasized the gravity of the situation, stating that the proposed tax change has overshadowed other promising aspects of the budget for the business community. Describing it as a potential deterrent to innovation and investment, Bergen highlighted the concerns echoed in an open letter signed by over 150 Canadian business leaders, urging the government to reconsider the tax hike.

Even prominent figures like Shopify CEO Tobi Lütke and president Harley Finkelstein have expressed apprehension about the proposed increase, warning of its potential ramifications on entrepreneurship and investment in the country.

Former finance minister Bill Morneau voiced similar sentiments, emphasizing the disincentivizing effect the budget’s measures could have on business investment in Canada’s innovation sector.

The backdrop of Canada’s longstanding productivity challenges adds urgency to the debate. Despite efforts to address the issue, the country’s productivity has consistently lagged behind OECD averages and peer nations like the U.S., Germany, and Japan. Bank of Canada senior deputy governor Carolyn Rogers recently underscored the pressing need to boost productivity, describing it as an “emergency” following a period of economic weakness.

Amidst concerns about access to funding and the overall business environment, the proposed tax hike on capital gains raises questions about the attractiveness of Canada as a destination for investment and innovation. With companies already grappling with various challenges, including a high-interest rate environment, the potential chilling effect of the tax policy on growth prospects looms large.

As the debate unfolds, stakeholders across Canada’s business landscape await further clarity on the government’s fiscal priorities and the potential implications for the country’s economic future.