Five reasons why raising the capital gains inclusion rate could be devastating for the economy

In the last election, the NDP proposed moving the rate to 75 per cent, from 50 per cent currently. Getty Images

It should be noted that there are many investors who are worried about possible changes in the capital gains inclusion rate these days. And it is that in the last elections, the PND proposed to move the rate to 75 percent, from the current 50 percent. This means that 75 percent of your capital gains would be subject to taxes.

In this way, liberals even with a minority government can consider the inclusion rate as a possible negotiation tactic to obtain the support of the PND to obtain the approval of a future budget.

Undoubtedly, actions are much more fun than politics. Still, it must be made clear why increasing the rate of inclusion of capital gains would be bad, very bad. Therefore, some of the reasons that make this clear are presented.

Reasons not to increase the inclusion rate

• THE ECONOMY COULD NOT SUPPORT IT: The Canadian economy is doing ‘OK’. But the third-quarter GDP growth of 1.3 percent is not exactly a great success. There are many potential problems lurking in the background.
  
• IT WILL NOT WORK: If the rate of capital gains increases, it is most likely that you simply do not sell shares. After all, allowing stocks to grow and compose is probably a better strategy anyway, assuming you don’t need the money.
  
• ALL INVESTMENTS ARE NOT EQUAL: Given that the mining and energy sectors remain very large parts of our economy, certain segments of the economy could be devastated as risk capital disappears and is directed towards safer investments They are taxed exactly the same as risky investments.
  
• ALL INVESTMENTS MAY FALL: Stock markets do not like change, and this would be a big one. So, although in the minds of governments they will do “more” by increasing the inclusion rate, they can actually end up with less.
  
• CANADA NEEDS MORE INVESTMENT, NOT LESS: Moving the higher capital gains rate will simply result in lower investment in Canada. Either by national investors or by international investors

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Source: Peter Hodson | Financial Post