Instead of importing millionaires, Canada needs to produce more of them

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When British Chancellor Jeremy Hunt announced the end of a two-century-old tax break that mostly benefits rich foreigners in his March budget, critics immediately charged the move would spark an exodus of wealthy individuals and hurt the country’s once-world-leading financial sector.

Mr. Hunt said the decision to phase out non-domiciled tax status, or “non-dom,” beginning in 2025 would raise £2.7-billion ($4.64-billion) a year by 2029 and ensure that more of the overall tax burden fell on the “broadest shoulders.” But the move marked a reversal for Mr. Hunt’s Conservative government, which had long defended non-dom status. The policy dates back to 1799 and allows foreign residents of Britain to avoid taxes on income earned abroad.

Tory Prime Minister Rishi Sunak had recused himself from the decision to scrap the tax break, from which his wealthy Indian-born wife had benefited for several years until 2022. Mr. Hunt’s move nevertheless seemed aimed at boosting the Sunak government’s flagging political fortunes ahead of an election later this year. The opposition Labour Party, which is far ahead in the polls, has long called for the elimination of “non-dom” tax status.

Mr. Hunt’s decision has produced plenty of handwringing in the City, as London’s financial district is known, which is still smarting from having lost its status as world’s financial capital to New York in 2018, two years after Britain voted to leave the European Union. Since then, London has had thousands of its wealthiest residents leave for, er, greener pastures.

Since 2013, London has seen a 10-per-cent decline in high-net-worth individuals, even though the overall number of them has exploded globally since then.

According to the 2024 edition of the World’s Wealthiest Cities report, London was still home to 227,000 resident individuals with liquid investable wealth of at least US$1-million at the end of 2023. But it has been falling further behind New York, with its 349,500 millionaires, up 48 per cent since 2013, the San Francisco Bay Area (305,700 millionaires, up 82 per cent) and Singapore (244,800, a 64-per-cent increase). London also lags Tokyo, which counts 298,300 millionaires, but the Japanese capital has seen a 5-per-cent decline since 2013. (The report is produced by London-based Henley & Partners, which advises wealthy individuals and governments on residence and citizenship programs.)

Two Canadian cities made the top-50 list, with Toronto claiming 13th spot (106,300 millionaires, up 25 per cent since 2013) and Vancouver coming in 31st place (41,400, an increase of 50 per cent). Montreal, with 17,700 millionaires, fell out of the top-50 ranking. It stood in 48th place in the 2023 World’s Wealthiest Cities report, with 17,900 millionaires, up 21 per cent in the decade to 2022. Calgary, the only other Canadian urban agglomeration to merit a mention as a “city to watch,” had 15,000 millionaires at the end of 2023.

Does it matter? Is ranking cities by the number of millionaires who live in them just a modern-day parlour game for financial types? Or does the exercise yield meaningful data on the economic status of these cities and the countries in which they are located over time?

If it is the latter, then Canadians might have reason to be concerned. Mr. Hunt’s budget move aside, countries around the world have been bending over backward to attract high-net-worth immigrants from China, India and other emerging countries (and high-tax developed ones) by fast-tracking their citizenship or providing lucrative tax breaks.

Canada used to do that, too. In 2014, the Conservative government of Stephen Harper scrapped the 28-year-old federal Immigrant Investor Program, after concluding that “most immigrant investors [were] not making a long-term positive contribution to Canada.”

The Quebec Immigrant Investor Program was suspended in 2019. It had long been criticized for its lax residency requirements – as many as 90 per cent of the wealthy immigrants who came to Canada under the program ended up living outside Quebec. The QIIP was relaunched this year with stricter residency and French-language requirements. Applicants must agree to live in Quebec for at least two years after obtaining a work permit.

In December, Australia’s left-of-centre Labor government announced plans to axe the country’s so-called “golden visa” program, under which more than 100,000 wealthy immigrants – 85 per cent of them from China – had earned residency status in exchange for investing between 2.5-million Australian dollars ($2.26-million) to 5-million Australian dollars since the program’s launch in 2012. The government said it would focus on attracting high-skilled newcomers instead.

Still, the top four Australian locations on the World’s Wealthiest Cities list (Sydney, Melbourne, Perth and Brisbane) had a combined 305,700 millionaires at the end of 2023; Canada’s top four had just 180,400.

Perhaps the lesson here is that, instead of importing millionaires, maybe Canada needs to do a better job at producing them. Raising the capital-gains tax inclusion rate, as Ottawa’s latest budget proposes, will not help do that. If the critics are right, it could even prompt some of our existing millionaires to leave.