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No, a wealth tax is not a get out of fiscal jail free card: Montreal Economic Institute

The federal government has expensive ambitions. It also has the enormous costs of the COVID-19 pandemic looming. These enormous bills will come due eventually. 

Would a wealth tax help? 

Just recently the Parliamentary Budget Officer released a report estimating the potential revenues that would result from implementing a one-time tax on “extreme wealth.”

As economist Maria Lily Shaw details for the Montreal Economic Institute, the proposed measure includes a tax rate of 3 percent on net wealth over $10 million and 5 percent on net wealth over $20 million to be paid over a period of five years. This tax would affect as many as 87,000 Canadians families, and raise up to $82.5 billion in revenue over five years. 

This details only the best-case scenario, however. The more realistic assessment reported by the PBO that takes into account inevitable tax-avoidance behaviour, she writes, showed a net revenue of $60.7 billion over five years, collected from more than 68,000 Canadian families.

This hardly puts a dent in the government’s spending plans. 

“Put together, all of these measures are estimated to levy $18 billion per year, whereas the federal government projects to spend just over $1 billion per day next year. It would therefore take the government roughly 16 days to spend an entire fiscal year’s worth of revenue generated by all the new revenue-increasing measures combined.”

This is a small gain compared to the large losses that would result, she concludes.

“Policy-makers must realize one very simple fact: the rich overwhelmingly invest their money in business ventures. This capital is funding job creation, innovation and economic activity that is absolutely vital. In fact, we risk jeopardizing Canadian ownership of family businesses by forcing their owners to liquidate assets to pay off the ‘rich penalty’.”

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