Discouraging those who are successful and dissuading competition will leave us worse off.
With the federal budget set to be released this week, there is growing concern that it will feature a ‘soak the rich’ tax hike on high income earners. According to Senior Portfolio Manager and columnist Martin Pelletier, there are rumors that the combined federal tax rate and provincial rates could lead to some Canadians paying almost 60% in taxes for every dollar they earn in the highest bracket:
“Can you imagine paying nearly 60% to the gov’t on every dollar earned over $230k in Canada? Think about that. Lets hope the rumors are false about the upcoming budget.”
Can you imagine paying nearly 60% to the gov't on every dollar earned over $230k in Canada? Think about that. Lets hope the rumors are false about the upcoming budget. #cdnpoli
— Martin Pelletier (@MPelletierCIO) March 20, 2023
Now, it is not confirmed that a substantial tax hike will be in the budget. However, a pre-budget report indicates the government will be targeting wealthy Canadians in an effort to expand their tax haul:
“Undertake a public review to identify federal tax expenditures, tax loopholes and other tax avoidance mechanisms that particularly benefit high-income individuals, wealthy individuals and large corporations and make recommendations to eliminate or limit them.”
With the Liberals moving more and more in the direction of the NDP on economic issues, significant tax hikes wouldn’t be a surprise. However, any short-term gain in government revenue would be offset with medium to long-term losses.
The beginning of the highest federal tax bracket – $230K – isn’t even that much money when you consider housing prices and the toll of inflation. Furthermore, we have to ask what people are getting for our already-high tax bills.
Do we have effective infrastructure? Do we have a strong healthcare system? Is our military well-funded? Is action being taken to reduce crime?
The answer to those questions is ‘no.’
Things in Canada are getting worse, even as taxes go up every year. So how would a new tax on high income earners help anything?
Canada doesn’t have a revenue problem, we have a spending problem. And spending isn’t even the biggest problem. The real crux of our economic challenge is that we have a productivity problem. Our productivity – best measured by our per capita GDP – has been stagnant for many years, and is falling behind many of our peers.
And that’s why raising taxes on the ‘rich’ will backfire. Many wealthy Canadians are rich because they provided significant value to others in the market. Investment by wealthy Canadians helps our private businesses thrive and expand. Wealthy Canadians already pay a substantial share of our national taxes. And, wealthy Canadians can often move to lower tax jurisdictions with relative ease, or cut back on the amount of money they earn.
We already know this is happening, as higher taxes create a perverse incentive for people to work less and earn less in many circumstances.
Underlying all of this is that Canada has been moving in a more and more socialist direction. Empowering the state at the expense of individual initiative in the private sector saps a nation of creativity and entrepreneurial spirit. That in turn leads to stagnation and a narrowing of both economic freedom and personal freedom.
We must turn away from that kind of thinking. Canada has tremendous creative potential and latent economic power just waiting to be unleashed. But we will never unleash it if we keep trying to blame the wealthy and impose excessive taxes on those who have achieved the most financial success. In order to prosper, Canada must be a place where wealth, competition, and productivity are celebrated, rather than punished.
Spencer Fernando
