True to form, the Trudeau Liberal government has missed the mark with their latest Federal Budget.
In 1984, Canada produced 88% of the value generated by the US economy per hour. By 2022, it dropped to 71%. There are three key pieces to productivity, capital intensity (physical equipment), labour composition (skill and training) and multi-factor productivity (efficiency of capital and labour). A productive country is fair more robust and able to weather economic storms…a true benefit to all citizens. One would think our government would prioritize this key issue and direct a budget towards what we, as individuals, have little control over.
However, the Liberal government feels the biggest threat to Canadian prosperity is “Fairness” and titled their budget accordingly.
To attack the “Fairness” problem from every other direction aside from head on, the Liberals are increasing Capital Gains inclusion rates. They somehow see this maneuver as the great equalizing force. Capital gains realized above $250,000 will have a two thirds inclusion rate instead of half. All capital gains realized in a corporation will have the new two thirds inclusion rate instead of half. These changes are effective for gains triggered June 25th 2024 and after. There are no other notable changes in the budget.
Since the budget came out last week, there have been numerous professional organizations releasing critiques of the budget’s ineffectiveness to solve our declining productivity. Ironically, the “Fairness” they are touting is likely to be marginally improved as many middle-class Canadians will feel the effects of the capital gain changes. This budget is simply grasping at straws to try and finance the fiscal bender Trudeau’s Liberals have been on in recent years.
I am all for fairness, but we need to understand flight of capital risk. If Canadian legislation is no longer beneficial for businesses and owners, we will see a mass exodus of money, talent and jobs. The Liberals have not only identified the wrong priority, but they have also gone about it in the wrong way. They are on the southbound highway going twice the speed limit when they should be going north. It will take a serious effort to get this country back on course.
We will continue to monitor the budget changes and contact clients if there are any proactive steps we see that should be taken. If you want some more slightly biased opinions of the latest budget, do not hesitate to reach out. https://www.bankofcanada.ca/2024/03/time-to-break-the-glass-fixing-canadas-productivity-problem/