Good morning. Thank you for having us today.
My name is Olivier Jacques and I'm an assistant professor at the School of Public Health at the Université de Montréal. I'm accompanied by my colleague Antoine Genest-Grégoire, who is an assistant professor in the Department of Taxation at the Université de Sherbrooke.
Today we would like to share our thoughts on the government's proposed reforms to the taxation of capital gains in Canada. We have expertise in developing public policies, particularly those relating to public finances. We will focus our comments on the tax policy objectives related to income inequality.
We have both spoken out to recommend that the capital gains inclusion rate be raised, first at an Observatoire québécois des inégalités event, and then in an open letter to La Presse in the spring. The proposals in the 2024 federal budget related to the taxation of this type of income differ from our suggestions, but they share their spirit. We believe that raising the capital gains tax is one of the most promising ways to make Canada's tax system more progressive and thereby combat income and wealth inequality in Canada.
Compared to other wealthy nations, the level of poverty and inequality in Canada is relatively high. Provincial governments are facing structural deficits associated with their health care service obligations. The federal government is also facing recurring deficits related to its new investments in social protection. Canada's participation in the fight against climate change is not living up to its means or its historical responsibility. Given these challenges, it's unrealistic to expect a return to fiscal sustainability in Ottawa and the provinces without raising taxes, unless we can tolerate more cuts to public services. A number of options exist for raising revenue in this way, but increasing the capital gains inclusion rate is likely to contribute the most to the goal of reducing inequality.
It should be noted that capital gains income is highly concentrated among very high-income earners in Canada. Eighty‑two per cent of capital gains are generated by the richest 10%, while 57% are generated by the richest 1%. Excluding 50% of capital gains limits the amount governments can expect to raise by increasing taxes at the top of the tax grid and reduces the overall progressivity of taxation. Increasing the inclusion rate targets higher-income earners better than a new tax bracket or increasing the current top bracket rate would.
I will now turn the floor over to my colleague Mr. Genest‑Grégoire.