Capital gains tax hike: Less revenue than anticipated, at the expense of entrepreneurs and the middle class

• The measure will bring in almost two billion dollars less than projected, according to an analysis by the PBO.
• Six out of 10 Canadians believe the measure will have a negative impact on the economy.

Montreal, August 1, 2024 – The increase in the capital gains inclusion rate will bring in less money for Ottawa than the government had projected, points out a researcher at the Montreal Economic Institute in response to the Parliamentary Budget Officer’s analysis, published this morning.

“This tax increase is a cynical measure, relying on a fire sale of assets before it came into effect,” explains Emmanuelle B. Faubert, economist at the MEI. “The analysis by the Parliamentary Budget Officer confirms what we thought: this tax increase will never again bring in as much revenue as it will its first year, as it reduces the incentive to invest in our startups.”

The Parliamentary Budget Officer estimates that the federal government will collect two billion dollars less in revenue than the Department of Finance estimated in March.

The PBO expects this tax increase to bring in five billion dollars in additional revenue for the federal government in 2024-2025, representing the highest level of revenue attributable to this tax increase over the next five years.

It attributes this increase in revenue to the early sale of assets before the tax measure came into effect on June 25. It also highlights a strong behavioural response from individuals.

“This tax increase is changing investor behaviour, the risk being that startup capital will be tied up in the same projects for longer,” explains Ms. Faubert. “By slowing down the investment cycle, this reduces the number of projects financed and, ultimately, the growth opportunities available to our entrepreneurs.”

In a study published in May, the MEI explained that this tax increase would have a negative impact on entrepreneurship in Canada, reducing the capital available to start new projects.

A recent MEI-Ipsos poll showed that six out of 10 Canadians fear this tax increase will have a negative impact on the Canadian economy. Seven out of 10 respondents said the tax increase would also affect the middle class.

* * *

The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

– 30 –

Interview requests
Natalia Alcocer
Intern, Communications
Cell: 514 974-7835