Analysis from the Montreal Economic Institute estimates the changes will bring in nearly two billion dollars less than expected
Opponents of the tax policy are questioning the PBO’s estimates, however, and argue that the additional revenues come at too great a cost.
An analysis by the Montreal Economic Institute (MEI) challenges the government’s optimistic projections, estimating that the new capital gains taxes will bring in nearly $2 billion less than expected and be “at the expense of entrepreneurs and the middle class.”
Emmanuelle B. Faubert, an economist at the MEI, explains that the tax increase caused a “fire sale” of assets before the policy came into effect, resulting in an unusually high spike in revenue for the first year that will not be sustained in subsequent years.
The PBO report estimates the federal government will collect $5 billion in additional revenue for 2024-2025 — the highest projected tax intake of the five years covered in the report. Still, this projection falls short of the Department of Finance’s previous estimate.
Faubert also emphasizes the tax’s negative impact on corporate investment, particularly for startups.
“This tax increase is changing investor behaviour, the risk being that startup capital will be tied up in the same projects for longer,” she said. “By slowing down the investment cycle, this reduces the number of projects financed and, ultimately, the growth opportunities available to our entrepreneurs.”
According to a MEI-Ipsos poll, public sentiment mirrors these concerns, with six out of 10 Canadians saying they fear the tax increase will negatively impact the economy. Additionally, seven out of 10 respondents believe the middle class will be affected by the higher inclusion rate.