Canada's Capital Gains Tax Rate Jumps To 67%: 'Highly Indebted Western Governments Have Promises To Keep, Wars To Fund,' Strategist Says

The Canadian government has announced several new tax increases in the latest budget released this week to cope with its debt.

The country’s capital gains tax will spike to 67% for earnings surpassing $250,000 in the year.

This establishes Canada as the nation with the world’s highest capital gains tax rate, surpassing Denmark’s second-place rate of 42%.

Tax Hike Amid Fiscal Strain: In an effort to address its triple-digit public debt, the Canadian government’s 2024 budget has raised the inclusion tax rate on capital gains.

For individuals, the threshold has been moved from 50% to 67% on gains above $250,000 realized annually, effective from Jun. 25, 2024. The change also affects corporations and trusts on all capital gains.

The Global Debt Dilemma: The tax hike comes as governments globally grapple with unprecedented public debts, a consequence of heavy loose fiscal policies employed during the pandemic.

Canada’s public debt-to-GDP ratio leaped from 87% in 2019 to 118% in 2020, with the current figure hovering at 107%.

Comparatively, the United States is projected to witness its public debt rise from 122% in 2023 to an estimated 134% by 2029, as per International Monetary Fund (IMF) projections, amid a swelling budget deficit.

Economist React To Canada’s Tax Hikes: “The 2024 federal budget lands at a time when the economy is struggling to grow, the Bank of Canada is still leaning on inflation pressures, the loonie is under stress, and the impact of torrid population growth pervades across much of the country,” said Robert Kavcic, economist at BMO Economics.

With an eye on the capital gains tax increment, Kavcic questions what further measures might follow, suggesting potential unrest among capital allocators.

In a more critical assessment of Western governments’ fiscal policies and Canada’s tax rise, Michael Hartnett, chief investment strategist at Bank of America, weighed in.

“Highly indebted Western governments have promises to keep, wars to fund,” Hartnett proclaimed in his latest ‘The Flow Show’ report.

Hartnett forecasts a scenario characterized by persistent inflation, climbing yields, and heightened taxation, suggesting that this course may persist until central banks intervene to bailout the indebted public sector.

Thus far in the month, the iShares MSCI Canada Index Fund (NYSE:EWC), which tracks the performance of major Canadian corporations, has experienced a 3% decline, on pace for the worst performing month since October 2023.

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