Filling out Canadian tax documents

A federal NDP campaign promise to increase the capital gains inclusion rate to 75% from 50% would bring in $44.7 billion over the next five years, according to estimates released by the Parliamentary Budget Office.

The party released the PBO’s costing of its campaign platform on Saturday.

The rate change, which would increase the portion of capital gains individuals and corporations have to include in their annual taxable income, would apply to capital gains realized on or after Sept. 21.

In its campaign platform, the NDP said that increasing the capital gains rate would “make our tax system fairer and ensure that the wealthiest individuals are paying their fair share.”

The PBO incorporated a behavioural response into its estimate, based on the “assumed elasticity” of taxable income for high-income earners, but said uncertainty remained over the level of projected capital gains and the magnitude of the behavourial response.

Neither the federal Liberals nor Conservatives are proposing to increase the capital gains inclusion rate. However, the federal Green Party indicated it would address “capital gains tax loopholes” that allow people and corporations to “only add half of their capital gains to their taxable income.” The Greens did not specify if or how they would change the inclusion rate.

The NDP has proposed a bevy of new tax hikes directed at high earners and large corporations to address what the party says is growing wealth inequality in the country, a trend exacerbated by Covid-19.

“While millions of families and small businesses have been pushed to the brink during the pandemic, the super-rich are doing better than ever,” the NDP said in its campaign platform. “Canadian billionaires are $78 billion richer since the first lockdown in 2020 – and counting. They’re making big money while people suffer.”

NDP campaign promises to spend on items such as pharmacare and a basic livable income would cost $214 billion over the next five years, the PBO estimated. If elected, an NDP government would “raise revenues through new, fair and progressive taxation sources to make the investments Canadians need to thrive,” the party said.

An NDP promise to increase the federal tax rate to 35% from 33% for individuals earning taxable income over $216,511 (indexed to inflation), would add $3.4 billion to government coffers over the next five years, the PBO estimated. The PBO again incorporated the behavioural response into its estimate, but cautioned that uncertainty remained.

The NDP’s promise to raise the general corporate tax rate to 18% from 15% would increase government revenue by $25.9 billion over the next five years, the PBO estimated. The proposed increase would return the corporate rate to its 2010 level.

“While profitable corporations benefit from these generous [tax] breaks, Canadian families are falling behind. New Democrats believe that it’s time to rebalance our priorities,” the party indicated in its campaign platform.

The PBO based its estimate on 2017 tax data, incorporating adjustments for growth in the tax base and changes to the dividend tax credit and gross-up rates in order to maintain integration between personal and corporate income tax rates. However, the PBO did not incorporate behavioural effects into the estimate.

An NDP promise to introduce a temporary 15% tax on “excess” profits earned by Canadian corporations during the pandemic in 2020 and 2021 would raise $14.6 billion next year, the PBO estimated. The tax would apply to corporations that earned more than $10 million in revenues in at least one year between 2016 and 2020.

“No one should be profiteering during a global health crisis when so many Canadians are suffering and need help more than ever,” the NDP platform stated. An NDP-led government would “go after large corporations that took publicly-funded COVID-19 wage subsidies and turned around and paid out executive bonuses, executed stock buy-backs or paid shareholder dividends.”

Under the NDP’s proposal, excess profits were defined as profits in 2020 or 2021 above the average profit margin from 2014-2019. The PBO estimated profit margins using public data on a firm-level basis and assumed that legislative actions would be taken to prevent the movement of profits or losses in response to this proposal. The PBO recorded estimated revenue for tax years 2020 and 2021 in taxation year 2021-22.

The NDP promise to impose an annual tax of 1% on net wealth above $10 million, beginning in 2021, would raise $60.1 billion over five years, the PBO estimated.