Higher capital gains taxes won’t work as claimed, but will harm the economy

Canada's Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland hold the 2024-25 budget, on Parliament Hill in Ottawa, on April 16.riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.

For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.

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