Additional Wealth Taxes: The Wrong Way to Balance the Budget
In anticipation of the 2021-2022 federal budget, the New Democratic Party of Canada is proposing a tax on large fortunes. The NDP states that the introduction of this measure could bring the government $70 billion over ten years, and that many other countries have already implemented a similar tax.
The MEI released a publication on this very topic last year, analyzing the effects of certain wealth taxes in the West. The first thing to note is that very few countries still have such a measure. In 1990, twelve European countries collected some form of wealth tax. By 2019, only three did. The Austrian government abolished its tax because of its high administrative costs. Other countries, like Finland, France, and Sweden, justified ending their tax by the fact that it was causing a significant exodus of capital and tax avoidance on the part of wealthier individuals and companies.
In order to calculate the tax to be paid, a government must estimate and quantify the value of each asset held by its citizens. In addition to this administrative difficulty, wealth taxes generate little revenue for governments. In Europe, wealth taxes represented revenues of 0.2% of GDP, which barely covers the costs of administering the tax itself.
The introduction of a wealth tax is therefore not a miracle solution for erasing the deficit caused by COVID-19. European governments have largely eliminated wealth taxes, and repeating these countries’ errors would simply be bad for the Canadian economy.