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Trudeau’s ex-finance minister criticizes capital gains tax hike

(Bloomberg) — Prime Minister Justin Trudeau’s former finance minister said he rejected the idea of ​​raising capital gains taxes during his term because he feared it would hamper Canada’s economic growth, calling the measure “deeply troubling.” for many investors.”

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Bill Morneau was Trudeau’s first finance minister from 2015 to 2020 before resigning, partly over disagreements over fiscal policy. He said on Wednesday that raising the tax rate on capital gains means people will actually be hit with a retroactive tax increase because they won’t get the profits they expected from investments.

In the federal budget published on Tuesday, Finance Minister said Chrystia Vrijland has unveiled a measure to increase the capital gains tax rate from half to two-thirds, applicable to all profits made by companies and trusts. For individuals, the new tax rate applies to profits above C$250,000 ($181,080).

The measure is expected to raise C$19.4 billion over five years, including C$6.9 billion in the current budget year.

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“This was very clearly something we opposed when I was there,” Morneau said Wednesday during a webcast hosted by accounting firm KPMG.

“We opposed it for a very specific reason: concerned about the growth of the country,” says Morneau, who now holds several positions, including on the boards of Canadian Imperial Bank of Commerce and NovaSource Power Services.

He said capital gains are something investors are “very concerned about”, and that the measure could have a chilling effect on future investments.

“From my perspective, this is clearly negative for our long-term goal of growing the economy, productive growth and investment.”

Read more: Canadian companies say tax hikes lead to deeper productivity decline

Freeland officials have pointed out that Canada’s capital gains tax rate has been higher in the past: from 1990 to 1999 it was 75%.

More broadly, Morneau criticized the amount of new spending in Freeland’s budget, especially when piled on top of the provinces’ large spending budgets this year.

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“We have seen significant increases in provincial government spending and that clearly goes against the central bank’s objectives of reducing inflation,” Morneau said. “I don’t think enough efforts have been made in this budget to reduce spending and create the right direction for the economy.”

Meanwhile, the finance minister of Canada’s largest province has also criticized Freeland’s move to increase tax revenue.

“I just don’t think you can tax your way to prosperity,” Ontario Finance Minister Peter Bethlenfalvy said on Bloomberg TV, noting that Ontario is extending a cut in gasoline and fuel taxes.

Ontario’s budget last month projected a deficit of C$9.8 billion ($7.2 billion) for the budget year that started April 1 – up from the C$3 billion deficit the previous year.

The federal budget projects a deficit of C$39.8 billion this fiscal year, about the same as the previous year.

–With help from Jonathan Ferro and Lisa Abramowicz.

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