A one-time tax on Canadians with more than $10-million in net wealth would generate about $60-billion in new revenue, according to a new report by Parliamentary Budget Officer Yves Giroux.
The research was conducted at the request of Liberal MP Nathaniel Erskine-Smith, who supports the idea even though it is not an official policy of the governing Liberals.
Mr. Erskine-Smith said on Thursday that he hopes the findings encourage more debate about new taxes on extreme wealth to pay for government services.
“We’ve just lived through a pandemic that has disproportionately and negatively affected so many at the bottom, and yet disproportionately benefited so many at the top,” he said. “Billionaires, after a one-time wealth tax like this, are still going to have enough money to go to space.”
Mr. Erskine-Smith’s reference to the recent and planned space travel by billionaires Richard Branson and Jeff Bezos illustrates his argument that a wealth tax could help offset the cost to governments of the COVID-19 pandemic. The 2020 Throne Speech included a general pledge to “identify additional ways to tax extreme wealth inequality,” but the Liberal government has not proposed a wealth tax.
The idea is a central plank for the NDP, and Leader Jagmeet Singh intends to promote it for the next federal election.
NDP finance critic Peter Julian said he expects wealth taxes will be a key issue in the campaign, which could start as soon as August.
“There’s no doubt in this upcoming election Canadians will want to debate the tax system that we have now and the fact that the ultrarich get off without remotely paying their fair share of taxes,” he said.
The NDP campaigned in 2019 on an annual 1-per-cent tax on wealth above $20-million, which the PBO has said would generate $5.6-billion in the first year.
Conservative finance critic Ed Fast said in a statement the tax plans from the Liberals and the NDP show his party is the only choice for Canadians who do not want new taxes.
Thursday’s PBO report estimates the fiscal impact of Mr. Erskine-Smith’s proposal, which he put forward in February as a non-binding motion. The motion calls on the government to implement a one-time tax on extreme wealth to help pay for the pandemic response, including a 3-per-cent tax on assets over $10-million and a 5-per-cent tax on assets over $20-million.
The motion also calls for an inheritance tax on estates valued at more than $5-million, and changes to the tax treatment of investment income “to ensure it is treated more equitably in relation to employment income earned by working Canadians.” Thursday’s PBO report focuses only on the wealth tax proposal and does not examine potential changes to inheritance taxes or investment income.
The PBO says its revenue forecasts are uncertain because they depend on assumptions of “behavioural responses,” meaning the way individuals affected by a new tax may alter their personal finances to reduce their tax exposure.
Thursday’s report says if there were no behavioural response, the one-time only wealth tax would generate $82.5-billion over the five years that people would be given to pay it.
Previous PBO reports on proposals for an annual wealth tax, such as the NDP plan, have estimated behavioural decisions could shave 35 per cent from reported wealth. Thursday’s report assumes that percentage would be less if the wealth tax is one time only rather than annual. Thursday’s report estimates Mr. Erskine-Smith’s proposal would generate $60.7-billion using that new formula, or $44-billion using the original assumptions for behavioural responses.
Franco Terrazzano, federal director of the Canadian Taxpayers Federation, pointed out France, Austria, Denmark, Finland, Germany, Ireland, India, Netherlands and Sweden have all tried and abandoned a wealth tax. He said those experiences have shown attempting to calculate wealth at a point in time is complex, and such taxes can encourage people to move assets out of the country.
“Wealth taxes are bad policy and we should learn from other countries’ experiences,” he said. “They are very costly. They’re very complex and they can have some very serious economic consequences.”
In a report released last year, the PBO estimated 76,300 families in Canada have wealth over $10-million, and their total wealth of $2.3-trillion represents 20.3 per cent of total wealth in Canada.
It also found 19,400 families have wealth above $25-million and their total wealth of $1.5-trillion represents 13 per cent of total wealth.
Thursday’s report updates some of those figures, estimating 87,149 families now have wealth of more than $10-million.
In response to questions about Thursday’s PBO report, Finance Minister Chrystia Freeland’s spokesperson, Katherine Cuplinskas, pointed to recent budget measures such as a new luxury tax and limits on stock-option deductions, but did not comment directly on a wealth tax.
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