Stephen Jarislowsky is founder and chairman emeritus of Jarislowsky, Fraser Limited and co-founder and director of the Canadian Coalition for Good Governance
Over the past year, I have been watching a new government dismantle the fine work of the late Jim Flaherty, our finance minister from 2006 to 2014. His fiscal policy was based on a balanced budget or better and a reduction in federal sales tax from 7 per cent to 5 per cent. While the sales tax cut remains, the balanced budget is gone, with a projected federal deficit of $28.5-billion in 2017 and no firm plan from Ottawa to balance the books.
The deficit is in spite of a major increase in the top federal tax rate, to 33 per cent from 29 per cent, on the highest earners. The increase not only raises the tax rate on earned income but on capital gains, as the latter is fixed at one-half the income tax rate. Statistics Canada figures from 2015 show that about 3 per cent of individual tax filers paid about 35 per cent of net federal tax. It is clear that those earning more than $200,000 annually continue to carry a large share of the load.
I believe that the current government's profligacy, leaning as it does on political populism, is highly discouraging for ambitious people in Canada – especially for young entrepreneurs and for those trying to build the private sector. Would I, as a young entrepreneur, stay in Canada upon graduating from a Canadian university with a tax system that in most areas of the country takes more than half of my income? Even beyond income and sales taxes, there is an array of other taxes on real estate (municipal and school taxes) plus an array of hidden taxes (liquor, gasoline and so on).
Opinion: Time for Liberals to limit tax breaks that favour highest earners
Read more: Ahead of federal budget, Morneau says world should follow Canada's tax-the-rich plan
There is also the cost of inflation on bond and cash savings. Because of the ravages of inflation on fixed monetary values (cash, mortgages and bonds), the "real" capital-gains tax on all but very short-term investments is even higher than it seems. As an owner of a business, were I to sell it after many years, the capital-gains tax would hit all gains, regardless of the inflation that took place in those years. If the sale price did not exceed the accumulated inflation, I would, in fact, pay capital gains on a real (i.e., inflation-adjusted) loss. This is in contrast to a short-term stock-market gambler, who obviously is little affected by the inflation during the six months (say) of ownership.
You do not build a prosperous country by excessively taxing those who create prosperity and jobs, now and in the future. History has taught us this time and again, whether you look at the Dutch Republic in the 17th century, Great Britain during the Industrial Revolution or the United States in the post-Second World War period. In those days, nation builders were encouraged.
A corporation is only as good as the quality of its people and management, and so it is as well for a country or region. To overtax productive people is to push them to leave Canada as they look for an environment in which to prosper. It is a self-destructive policy. Executives need not be overpaid to do a good job. But they must feel that they are being treated fairly by the tax system. Young people with excellent abilities should not be educated in Canada, only to leave for Singapore, Hong Kong, Germany, Switzerland or the United States to make a successful career as entrepreneurs and leaders because they do not accept being taxed unfairly by their country or province.
All the talk of infrastructure and "the middle class," combined with excessive taxation and vote buying through deficit spending, will not solve our problems. Nor will low interest rates that lead to real estate bubbles. There is nothing gained by discouraging dedicated people and the building of great entrepreneurial companies such as Saputo, CGI and Couche-Tard in Quebec. It is time for fairness, ethics, common sense and long-term thinking to take hold, to make this a better place to live. The motto of the Order of Canada – "They desire a better country" – says it all.