Thank you, Chair, and welcome to the witnesses.
First, I'd just like to make a comment. We know that Canadians over the last several years have faced a very high cost of living due to global inflation. I know that many of the residents in my riding have voiced those concerns. It was obviously very good, solid economic news to have the inflation rate come in at 2% today. It's at the bank's target. It has been within the bank's target range for all of 2024.
We have seen three rate cuts, cumulatively 75 basis points. As an economist, and in my personal opinion, this sets up the Bank of Canada to pursue further rate cuts. I think we've achieved what's called a “soft landing”, in economic terms. Rates will be coming down. Canadian families know that. It's a good thing to do. We have much more work to do. We want to make sure we take care of all Canadians. That confidence continues to increase.
With that, Chair, I'd like to now turn to the subject matter at hand, the capital gains front and specifically the inclusion rate.
I thank you, gentlemen, for your viewpoints. As we know, our tax system is design to raise revenue to pay for services and programs that Canadians depend on, be it old age security, be it today the Canada child benefit or be it the national early learning and child care plan. However, we must also design a tax system that does not distort and that does not provide perverse incentives for certain behaviour to occur. With differing tax rates for interest, dividends and capital gains, that is what happens with the capital gains inclusion rate being at the level it was. “Economic actors”, to use that term, would pursue such policies as surplus stripping. I won't get into the specifics of that, as that would take a little longer, but surplus stripping is a tax avoidance strategy used to garner capital gains instead of other forms of income.
We need to have a tax system that promotes fairness and neutrality or integration. The step we've taken on the increase to the capital gains inclusion rate is something that answers and does all of those to a certain extent. What we don't want is a system that purports to provide incentives for tax avoidance strategies to take place, distorts economic activity and leads to an extreme accumulation and concentration of wealth. That is not good for our society. That is not good for our children. That is not the Canada I fundamentally believe in.
Going from an effective tax rate that is currently 25% and moving the effective tax rate up to a certain number higher, depending on the province you live in, but still being allowed to generate a lot of economic wealth is something that I believe is fair. It provides more for a neutral tax system that is progressive. It allows us to fund a number of programs that Canadians depend on, such as the Canadian dental care plan, the early learning and national day care plan, the workers benefit and the seniors benefit, which goes to thousands of seniors in my riding.
With that, I have a question for Marc Lee.
Would you not agree that the inclusion rate change results in a more progressive, fair and neutral tax system?