Federal budget: You can’t solve a productivity emergency with tax hikes

• Ottawa still has no plan to return to a balanced budget.
• Under Justin Trudeau, the federal government has hired over 98,000 new bureaucrats.

Montreal, April 16, 2024 – The increase in the capital gains tax inclusion rate will further exacerbate Canada’s productivity lag, asserted the Montreal Economic Institute in response to the publication of the federal budget this afternoon.

“Canada’s productivity is in crisis and the best way to get it back up is to attract new investments,” explains Renaud Brossard, Vice-President of Communications at the MEI. “And few are those who have been able to lure investments and job creators with promises of higher taxes.

“With this budget, the Trudeau government is shooting us in the foot.”

In the budget, the Trudeau government has announced the capital gains inclusion rate from 50 per cent to 66 per cent for capital gains superior to $250,000 per year.

Last March, the deputy governor of the Bank of Canada, Carolyn Rogers, spoke of a “productivity emergency” in Canada.

Canadians rank second to last among G7 countries in terms of productivity per hour worked, according to an MEI study published last August.

The Institute explains that this lag arises from a shortfall in private non-residential investment. In 2018, this investment amounted to an estimated $27,307 per American worker, but only $17,389 per Canadian worker.

“Every dollar the government expects to subtract from the pockets of investors with this tax hike is a dollar of potential investment lost,” explains Brossard. “It’s time for the Trudeau government to realize it doesn’t have a revenue problem, but rather a spending problem.”

The budget tabled by the Trudeau government today forecasts a shortfall of $39.8 billion for the year 2024-2025.

High interest rates are contributing to this situation, with interest payments on the federal debt estimated to reach $54.1 billion dollars this year, up 14.6 per cent over last year.

The MEI observes that one of the major sources of increased spending is the massive hiring of federal public servants under the Trudeau government.

Since the first Trudeau budget in 2016, the federal public service workforce has grown by more than 98,268 employees. Considered in terms of the number of government employees per Canadian, this represents a 28% increase according to an MEI study published in January.

“The explosion in the number of bureaucrats in recent years is symptomatic of a government that has lost all control over the growth of its spending,” explains Brossard. “There are now 28 per cent more federal public servants per capita, but very few Canadians would tell you that Ottawa is doing 28 per cent more for them.”

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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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Renaud Brossard
Vice President, Communications
Cell: 514 743-2883