Opinion: Time to stop complaining about the capital gains hike and get back to work

We are all against new taxes. But it’s not that simple

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It would seem bizarre that anyone would welcome new taxes, especially those that have to pay them. And I am guessing I am in the top one per cent of Canadian taxpayers. So, is what you are about to read an endorsement of Finance Minister Chrystia Freeland’s increase in the capital gains tax? Yes and no. The “no” is easy: We are all against new taxes. But it’s not that simple. And that’s the problem — no one is attempting to provide the whole picture, the understanding of which would help assess the merits of this particular tax initiative.

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Let’s start at a high level. The Canadian economy is not performing well relative to its peers. We are losing on a lot of metrics: GDP growth, productivity, average basic income. It’s not pretty. The government’s job is to reverse this trend and show leadership. Almost 20 years ago, I sat on a panel with Mike Lazaridis and Joe Rotman that examined our failure to match the Americans in the effective commercialization of the research activity that is carried out in Canada, in both the public and private sectors. Unfortunately, that is still a handicap, but important changes are happening, such as by way of the Creative Destruction Lab (where I am chair), which was born at the University of Toronto and is now a global technology incubator of real note.

More importantly, the country is not investing aggressively in those sectors where the global economy is on fire. We are good at large language model AI — in fact we were involved in its infancy. But American venture capital and the higher appetite for risk south of the border — which is far in excess of what we like to tolerate — quickly resulted in the growth of that industry shifting there.

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That reticence to be aggressive extends to large capital commitments in fixed assets. As a cabinet minister in the current government once bemoaned to me, “We just don’t seem to be able to build big projects in this country.“ Witness the hurdles faced by the Trans Mountain pipeline expansion. Big capital shies away from Canada, making it hard to do big things, and that needs to change.

We are an energy powerhouse but the energy of today and that of tomorrow are two different things. The government has invested billions in convincing the car companies to build their battery plants here. And battery technology has applications across the energy sector, not just EVs. We have iron ore that ranks among the world’s best for making green steel. There are multiple opportunities for Canada to lead the green revolution. But it takes big investment and we have to compete for that investment with others, including the Biden administration, which is spending hundreds of billions to stimulate private sector activity.

Do we want to be a player or not? Do we want to be at the leading edge of the trillions — yes, trillions — of dollars that will be spent in the green transition over the next 25 years? If so, then the government has to play a leadership role. But, wait: We can’t borrow money as cheaply as our American counterparts, who have the world’s only reserve currency. We have to pay much more attention to fiscal deficits and our national balance sheet or the delta in the cost of our borrowing will continue to widen. With that, our currency will sink — and no country has ridden to a buoyant economy and meaningful increases in the population’s standard of living on the back of a cheap currency.

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The truth is we have hard choices. Invest or go home. Be fiscally responsible or you can’t invest. Be prudent with tax policy and apply it such that you don’t impair the incentive to invest, but generate the income so we can invest. Will this latest increase in the capital gains rate prove to be a back breaker? I don’t believe that for a second. Those who have to pay more will not like doing so, but I would represent we love our country and it is full of opportunities. We need to work together in making it the country we all want to be proud of, so go back to work and stop complaining.

John Risley is the chairman and chief executive officer of CFFI Ventures Inc.

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