Commentary

Evidence on Behavioural Effects of Higher Capital Gains Taxes in Canada

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The debate over whether to increase the tax rate hinges in part on the extent to which a higher tax rate would distort investment decisions and reduce incentives for Canadians to invest. This commentary sheds light on this debate by analyzing the effects of a tax policy change in the mid-1990s that increased the effective capital gains tax rate. They find that the new higher rate on capital gains tax had no adverse effect on cumulative adverse effects on capital gains realizations. Read this articleEvidence on Behavioural Effects of Higher Capital Gains Taxes in Canada→

A New Tool to Understand Equalization Payments in Canada

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Canada’s equalization program is one of the most important federal transfers — and one of the most misunderstood. A new tool from Finances of the Nation opens the black box and understand how it works, how it doesn’t, and what the future might hold. Read this articleA New Tool to Understand Equalization Payments in Canada→

Debt Aversion in Canada Since the 1980s: Are things about to change?

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For the past 35 years, debt aversion has been an organizing principle of Canada’s federal fiscal policy. This commentary demonstrates the fact of fiscal policy continuity focused on debt aversion since the 1980s and asks whether the current surge in debt is simply an emergency response to the COVID-19 pandemic and recession or the beginning of a new era of fiscal policy that is markedly less focused on avoiding debt. Read this articleDebt Aversion in Canada Since the 1980s: Are things about to change?→

An Employment Insurance system for the 21st century: Lesson 2, The future of work calls for better income insurance

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This is the second commentary in a three-part series examining ideas for reforming Canada’s Employment Insurance (EI) program. This commentary discusses the need for the EI program to provide comprehensive insurance against various forms of income loss. The First commentary, on the need for EI to be better designed to insure against big shocks, can be found here. Read this articleAn Employment Insurance system for the 21st century: Lesson 2, The future of work calls for better income insurance→

An Employment Insurance system for the 21st century: Lesson 1, Big shocks matter

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This is the first commentary in a three-part series examining ideas for reforming Canada’s Employment Insurance (EI) program. This commentary argues that the program as presently constituted is not well-designed to provide adequate support for households that suffer large and enduring negative income shocks. Read this articleAn Employment Insurance system for the 21st century: Lesson 1, Big shocks matter→

Making the Best of It: Options for Carbon levy Revenue in Alberta

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Recently, the Trudeau government announced it would increase the federal backstop carbon levy to $170 per tonne between now and 2030. This backgrounder considers options for fiscal policy reform in Alberta that would be made possible by the provincial government repatriating the full amount of the carbon levy (most of which is now collected by Ottawa and distributed to Albertans in lump sum transfers) while also instituting a harmonized sales tax. These options include almost entirely closing the province’s “fiscal gap” and thus essentially solving its current fiscal problems or eliminating both personal and corporate income taxes, thus creating a more economically efficient and easily understood “tax advantage” than Alberta has ever enjoyed in the past. Read this articleMaking the Best of It: Options for Carbon levy Revenue in Alberta→

Reforming GST Rules for Foreign Digital Suppliers

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The Trudeau government recently announced the extension of the GST to include digital products and services sold remotely to Canadians by foreign suppliers. This change is sometimes referred to as the “Netflix Tax.” The tax policy change is long overdue, and will ensure foreign suppliers of digital services to Canadians pay their fair share of taxes. The new rules will impart greater integrity to our tax system and prepare Canada to look to the future of digital taxation with clear eyes. Read this articleReforming GST Rules for Foreign Digital Suppliers→

The Fiscal Wages of Sin

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Provincial governments across Canada face a conflict of interest surrounding the policy treatment of alcohol, tobacco and gambling. On the one hand, all provinces derive substantial revenues from “sin taxes” or from providing these goods and services through government monopolies. These revenues flow into consolidated revenue funds for the year they are collected and so governments are reliant on them to fund current programs. On the other hand, governments have a mandate to promote public health, all of which are negatively affected by alcohol, tobacco and gambling addictions. This commentary explores the conflict of interest surrounding sin taxes. It also considers policy proposals for setting aside a non-trivial share of all sin tax revenue in a special fund designed to generate a lasting stream of revenue that can be used to finance social support projects an initiatives. Read this articleThe Fiscal Wages of Sin→

Highlights of interprovincial tax comparisons: Bilan de la fiscalité au Québec 2021 Edition

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The first part of this 2021 edition of the Bilan de la fiscalité au Québec presents the tax announcements made by the Québec and federal governments, and by those of the other provinces, since the previous edition of the report. The next two sections compare Québec against the other Canadian provinces in terms of taxation. The fourth section presents an overview of tax expenditures in Québec and evidences the choices made regarding the different sources of tax revenues. Then, two sections examine taxation from different angles, namely, households (net tax burden) and individuals (profile of Québec taxpayers). Finally, the last section looks at various indicators of income inequality and how governments reduce inequality through taxation. Read this articleHighlights of interprovincial tax comparisons: Bilan de la fiscalité au Québec 2021 Edition→

It’s time to increase taxes on capital gains

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To address wealth inequality, and to improve functioning of our tax system, tax rates on capital gains income should be increased. The current tax preference for capital gains costs upwards of $15 billion annually. To equalize the tax treatment of gains and other income, the inclusion rate for capital gains on shares of small businesses should rise to 90% from the current 50%, and the inclusion rate for gains on shares of large corporations should rise to 70%. This would constitute a simpler, more efficient way of taxing high-wealth individuals compared to other recent proposals for a novel tax on wealth, and would likely raise more revenue as well. Read this articleIt’s time to increase taxes on capital gains→