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The Canadian government is increasing the capital gains tax for the relatively well off. They claim it only affects 0.13% of Canadians, but this is a lie, since capital gains are extremely lumpy, mostly affecting estates. A much larger share of the population will be in that 0.13% at some point in their lives. The tax will affect a lot of middle class people, distort the economy, and, as I'll explain at the end, redistribute wealth to foreigners.
Currently, 50% of capital gains count towards your taxable income and so you'd pay half the marginal rate, which tops out at between 44.5% and 54.8% depending on which province or territory you live in. The new rule would raise the portion of capital gains that is taxable from half to two thirds for capital gains over $250,000. Primary residences are exempt and it doesn't affect tax protected savings accounts like RRSP and the relatively new TFSA. Most people don't save enough to have savings outside of these accounts and their primary residences, but you certainly don't need to be rich to do so. You could be someone who chose never to own his primary residence and increased savings in the stock market instead. You could own a cottage, to which the capital gains tax applies when you either give it to your children or when you die. Lots of middle class people will be affected.
The capital gains tax is actually a very unfair and even absurd tax. You invest after-tax income from your salary and then when you realize a gain on those savings, even if it's just enough to keep up with inflation such that you have no real gain, you pay taxes again. Someone who is equally wealthy but doesn't save his income for as long would pay less tax. So it taxes savers more than spenders and discourages investment. There are further distortions due to the fact that primary residences are exempt, which incentivizes people to save by investing in their primary residences, inflating property values and making housing more expensive.
This brings me to my last point. The Liberals are far behind the Conservatives in the polls and an election is at most a year and a half away. The main issues tanking their popularity are housing and immigration, particularly for young people, who see a connection between those two issues. Older people don't care so much and are happy to see their property values rise (property values have risen far out of proportion to incomes in recent decades). However, this new tax rule is being promoted in the name of generational fairness.
This makes no sense. The Liberals have dramatically increased the immigration rate, which certainly has inflated property values. There are good arguments to defend this, among them that the higher property values are a net gain for Canada since the vast majority of property is owned by Canadians and most Canadians are homeowners. It really only hurts renters whose parents aren't homeonwers and therefore won't inherit that wealth. Most young Canadians, even if they rent, have parents who are benefiting from this and therefore shouldn't really complain (although they do). Now, the government is doing the one thing that messes this up: they're redistributing much of those gains to the younger generations who include, in very large and increasing numbers, immigrants and their children. What is the point of inflating asset prices with immigration if you're just going to redistirbute the gains to those immigrants? If your goal is to be maximally charitable to immigrants, fine, but this is not in the best interests of Canadians.
The tax increase does exempt primary residences, but not other assets like secondary residences, and the reason for this tax increase is to fund the enormous increase in spending on things like subsidies for new home buyers and affordable housing. The deficit has ballooned to $40 billion dollars under Trudeau and I think the government is actually starting to get desperate and trying to think of ways to raise revenue without spending political capital. Corporations and trusts will also pay this higher capital gains tax. This will reduce business investment. The tax seems calculated to actually raise a fair bit of money while minimizing the number of people who think they'll have to pay it.
Capgains taxes are fine, and even desirable if you want to lower or stabilize the gini coefficient. Rich people tend to get most of their money through their existing wealth, not through directly working which would be subject to income taxes. It's the closest thing to a tax on wealth that most societies can really achieve. A society that lets wealth accumulate unhindered ends up looking like France in the Belle Epoque period, where dynasties of the ultra-wealthy control almost everything.
You can say something similar for a sales tax, where post-tax money is taxed again, and if inflation happens then the absolute value of the tax increases. None of this makes either tax "unfair" or "absurd".
I do agree that trying to fix the problem by subsidizing housing for the young is silly. It's treating the symptoms instead of the cause, which is almost certainly NIMBYs and zoning restrictions like it is in the USA. But those are typically local issues that the national government doesn't have jurisdiction over, so they try to seem like they're "doing something" by just throwing money at the problem.
It's really a scheme to tax old people and give the benefits to younger people, which isn't the worst idea but the underlying issues of the housing crisis really do need to be resolved as well.
Very good comment and I agree with most of your points here. I would say that NIMBY and zoning isn't all there is to it, it is simply very expensive to just build a house now, even if you already own the land and act as your own general contractor.
Stringent code requirements are part of it, you can't just throw up 4 walls and roof anymore. You would be hard pressed to build your own home for less than $300 a square foot if you wanted any kind of fit and finish, so we're talking 300k for a new 1,000 sq foot home and garage.
Until we have a much cheaper way to make quality housing we are always going to be in a "housing crisis". That being said, 75% of the people in my state own their own homes, I think the "housing crisis" is overblown. Shit is just expensive now, there are too many people, and they all want to live in the same places. If people want cheaper homes encourage your kids to become carpenters/plumbers/electricians willing to work for low wages. Getting a door replaced is like 3k these days. Everyone wants a freestanding home next to mountains, the ocean, lakes and a major metro with good weather, they can't all live there.
A good econ piece for a good researcher would be to figure out why the costs of construction increased so much between 2019 to 2024. It seems like Texas could atleast print 3k sq ft at 500-600k new back then. With then older 3k sq ft homes going for 400k.
WFH killing construction costs doesn’t vibe right to me. Construction workers and lumberjacks aren’t the people afraid of COVID or the people who ever could do WFH. We have had general inflation probably totaling 20-25% but it still feels harder to build now.
A lot of it is experienced tradesmen are aging out and no one is replacing them. That is an even more serious problem where I live as we don't have any immigrant labor to replace them like they do in the south and southwest. I can also count on one hand the number of women I've ever seen on a jobsite doing manual labor, so that really takes half the population off the table for these jobs. Materials costs have doubled as well in a lot of cases. The prices went up during covid, and they never came down, lumber being the only real exception.
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