Finance Committee on Oct. 22nd, 2024

[Dr. Jack Mintz]

Don't forget that the Conservatives also introduced the $100,000 capital gains exemption in 1987. They also introduced the special one for farmers and small business. The increase in the inclusion rate reflected the reduction in the corporate tax rates at that time. It was a way of trying to keep the total tax on realized capital gains similar to the top tax rate on dividends.

I'm not arguing against that as a principle. What I'm saying is that right now is not the time to do it. In fact, I would have preferred a much more thoughtful approach to the whole of capital gains taxes because of the complexity of the issue, including issues like inflation.

[Don Davies, NDP, Vancouver Kingsway, BC]

Dr. Mintz, where is corporate income tax today relative to where it was in 2000?

[Dr. Jack Mintz]

In 2000, our federal-provincial rate was 43%. Today it's around 26%, on average.

[Don Davies, NDP, Vancouver Kingsway, BC]

So corporate tax rates are significantly lower today.

[Dr. Jack Mintz]

Right—and we have not increased the capital gains inclusion rate since 2000.

[Don Davies, NDP, Vancouver Kingsway, BC]

Yes. I realize it's difficult. There are so many moving parts. I mean, it's hard to isolate one thing.

[Dr. Jack Mintz]

Exactly. It's complex.

[Don Davies, NDP, Vancouver Kingsway, BC]

I appreciate that. You seem to have isolated the current increase in capital gains tax with some very precise numbers about what you think will be calamitous negative impacts, but we did not experience those calamitous negative impacts when they were raised twice before by Conservatives. That's what I'm trying to understand. You point to different economic moves at the time, but there are different economic moves happening now, including historically low corporate income tax rates and lower interest rates.

Incidentally, I would point out as well that investment in machinery, equipment, technology and innovation actually did not drop after the capital gains inclusion rates were raised in the late 1980s and early 1990s, but they have dropped in the last 10 years. Do you have any sort of explanation for that?

[Dr. Jack Mintz]

First of all, we have to remember that investment depends on many factors that are changing. For example, there was a major recession in 1990 to 1992, and that caused investment to decline, caused GDP to decline and caused a huge increase in unemployment, part of which may have been contributed to by some of the public policies at that time, but we have to remember that.

The main point is that when I did this estimate, it was based on keeping all other factors constant. Now, of course, if there are other changes that are going to occur, then what will actually happen to GDP and everything else will vary, but this is what economists do; they isolate the factor. My main point is that you have to be realistic. The capital gains tax increase will have an impact on GDP and on employment. The number isn't huge, in my view, but in fact, we don't even.... The number I did not include was the loss in tax revenues as a result of the reduction in GDP, so actually, to get back to the earlier question on that, I think we have to remember that the total revenue impact is actually not just looking at the capital gains revenues that are raised.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Davies. That will be the final question.

[Rachel Bendayan, Liberal, Outremont, QC]

Mr. Chair, would there be time for another Conservative and Liberal round? I'd like to get in on this discussion, but I appreciate that—

[The Chair, Liberal, Peter Fonseca]

No, there's no time for that.

MP Chambers, do you have something really quick?

[Adam Chambers, Conservative, Simcoe North, ON]

I don't want to surprise any members of the committee. The CRA is scheduled to come. I would like to make a request to the clerk for a few briefing notes that are specifically related to the topics for which the CRA is coming. I'm not requesting unredacted documents. The CRA can treat this as an ATIP request and redact as many of the documents as it likes. However, to support our discussions with the CRA, I would like to make this request to the clerk for documents—

[Rachel Bendayan, Liberal, Outremont, QC]

Mr. Chair, we don't have time for further rounds with witnesses present, but we have time for this—

[Adam Chambers, Conservative, Simcoe North, ON]

I'll bring a motion on Thursday, and we can vote on it then.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Okay. Thank you, MP Chambers.

First, before we head out, everybody, let's thank our expert witnesses.

You've been generous with your time. We thank you so much for coming before our committee for our pre-budget consultations on budget 2025. We really appreciate all the testimony that you've provided to us and to our committee.

Thank you very much. We wish you the best for the rest of your day.