All sorts of carbon tax advocates – environmentalists, academics, political insiders – are saying the following: all those annoying little Canadians who are so vulgar and uneducated as to object to carbon taxes should shut up once and for all.
Their assertion is: the Supreme Court has decided that the federal government can tell the provinces what to do, so the subject is settled.
But no, that is not quite true. What is true, is that IF a federal government wants to impose a carbon tax, it can.
The SCC majority decision is written by a most Trudeau-esque Chief Justice Wagner. In the decision the Chief Justice writes – in a dramatic overreach beyond law to the realm of policy – that climate change is “an existential threat to human life in Canada and around the world”. He then uses that as the basis for his affirmation of the federal government’s use of the Peace, Order and Good Government clause in the constitution.
Fine. We should all be troubled that the SCC has done this, but so be it. For my part, I thoroughly disagree with this decision, as I wrote in my previous blog post.
But the effect of the decision is not to bury the carbon tax issue, notwithstanding the arrogance and the climate alarmism of 6 of the 9 Supreme Court Justices.
What the SCC actually did is kick the carbon tax issue right back onto the front page of national politics.
What?
Yes, thanks to the SCC decision, we are all now once again talking about the carbon tax.
The fact that the Trudeau government has been told it can impose a carbon tax, does not mean that any successor federal government must impose a carbon tax.
Canadians do believe in climate change. I do.
And all of us are told constantly by many – from the likes of Greta Thunberg, and Justin Trudeau (and now) the Chief Justice of the SCC – that climate change is an existential threat. And now we are told that it must be addressed by carbon taxes.
Well … no, actually.
That isn’t a logical sequencing of things. A belief in climate change doesn’t require a belief in it being an existential threat nor does it require an embrace of carbon taxes.
Making that point is hard, in the midst of all the noise.
But politicians with the courage to stand up for Canadians can make this point.
Politicians who care about the issue of affordable energy can, and should, make the case against carbon taxes.
The anti-carbon tax fight requires a pushback against the establishment interests who have a platform in mainstream media and elsewhere. It requires a pushback against the slew of policy wonks who like to say “carbon taxes just make so much sense.” And it requires a pushback against the many people who insult everyday Canadians who are sick and tired of watching their taxes go up.
If politicians of conviction have the courage to mount such a pushback, if they are prepared to listen to Canadians instead of trying to shut them down, they have a shot to articulate an alternative vision that is in the interests of Canadians’ long-term economic well-being.
In an upcoming blog, I will offer some suggestions for that alternative vision.
An 18 year veteran of the House of Commons, Dan is widely known in both official languages for his tireless work on energy pricing and saving Canadians money through accurate price forecasts. His Parliamentary initiatives, aimed at helping Canadians cope with affordable energy costs, led to providing Canadians heating fuel rebates on at least two occasions.
Widely sought for his extensive work and knowledge in energy pricing, Dan continues to provide valuable insights to North American media and policy makers. He brings three decades of experience and proven efforts on behalf of consumers in both the private and public spheres. Dan is committed to improving energy affordability for Canadians and promoting the benefits we all share in having a strong and robust energy sector.
An 18 year veteran of the House of Commons, Dan is widely known in both official languages for his tireless work on energy pricing and saving Canadians money through accurate price forecasts. His Parliamentary initiatives, aimed at helping Canadians cope with affordable energy costs, led to providing Canadians heating fuel rebates on at least two occasions.
Widely sought for his extensive work and knowledge in energy pricing, Dan continues to provide valuable insights to North American media and policy makers. He brings three decades of experience and proven efforts on behalf of consumers in both the private and public spheres. Dan is committed to improving energy affordability for Canadians and promoting the benefits we all share in having a strong and robust energy sector.
Canada’s inflation-adjusted per-person annual economic growth rate (0.7 per cent) is meaningfully worse than the G7 average (1.0 per cent) over this same period. The gap with the U.S. (1.2 per cent) is even larger. Only Italy performed worse than Canada.
Growth in gross domestic product (GDP), the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of Canada’s economic performance. Journalists, politicians and analysts often compare various measures of Canada’s total GDP growth to other countries, or to Canada’s past performance, to assess the health of the economy and living standards. However, this statistic is misleading as a measure of living standards when population growth rates vary greatly across countries or over time.
Federal Finance Minister Chrystia Freeland, for example, recently boasted that Canada had experienced the “strongest economic growth in the G7” in 2022. Although the Trudeau government often uses international comparisons on aggregate GDP growth as evidence of economic success, it’s not the first to do so. In 2015, then-prime minister Stephen Harper said Canada’s GDP growth was “head and shoulders above all our G7 partners over the long term.”
Unfortunately, such statements do more to obscure public understanding of Canada’s economic performance than enlighten it. In reality, aggregate GDP growth statistics are not driven by productivity improvements and do not reflect rising living standards. Instead, they’re primarily the result of differences in population and labour force growth. In other words, they aren’t primarily the result of Canadians becoming better at producing goods and services (i.e. productivity) and thus generating more income for their families. Instead, they primarily reflect the fact that there are simply more people working, which increases the total amount of goods and services produced but doesn’t necessarily translate into increased living standards.
Let’s look at the numbers. Canada’s annual average GDP growth (with no adjustment for population) from 2000 to 2023 was the second-highest in the G7 at 1.8 per cent, just behind the United States at 1.9 per cent. That sounds good, until you make a simple adjustment for population changes by comparing GDP per person. Then a completely different story emerges.
Canada’s inflation-adjusted per-person annual economic growth rate (0.7 per cent) is meaningfully worse than the G7 average (1.0 per cent) over this same period. The gap with the U.S. (1.2 per cent) is even larger. Only Italy performed worse than Canada.
Why the inversion of results from good to bad? Because Canada has had by far the fastest population growth rate in the G7, growing at an annualized rate of 1.1 per cent—more than twice the annual population growth rate of the G7 as a whole at 0.5 per cent. In aggregate, Canada’s population increased by 29.8 per cent during this time period compared to just 11.5 per cent in the entire G7.
Clearly, aggregate GDP growth is a poor tool for international comparisons. It’s also not a good way to assess changes in Canada’s performance over time because Canada’s rate of population growth has not been constant. Starting in 2016, sharply higher rates of immigration have led to a pronounced increase in population growth. This increase has effectively partially obscured historically weak economic growth per person over the same period.
Specifically, from 2015 to 2023, under the Trudeau government, inflation-adjusted per-person economic growth averaged just 0.3 per cent. For historical perspective, per-person economic growth was 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.
Due to Canada’s sharp increase in population growth in recent years, aggregate GDP growth is a misleading indicator for comparing economic growth performance across countries or time periods. Canada is not leading the G7, or doing well in historical terms, when it comes to economic growth measures that make simple adjustments for our rapidly growing population. In reality, we’ve become a growth laggard and our living standards have largely stagnated for the better part of a decade.
Capital taxes are among the most economically-damaging forms of taxation precisely because they reduce the incentive to innovate and invest.
Amid a federal budget 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.
Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50 per cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’ marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.
The problems with hiking capital gains taxes are numerous.
First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.
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.
Second, the lock-in effect creates a drag on economic growth as it incentivises investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.
And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7 billion. Hiking taxes on capital will make both pressing issues worse.
Contrary to the government’s framing—that this move only affects the wealthy—lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically-damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital do raise revenue, the economic costs exceed the amount of tax collected.
Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new start-ups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgement of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.
At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.
