Freeland’s tax grab will harm economy
For all of the political bluster of “Making Sure Everyone Pays Their Fair Share,” successive Liberal budgets had — until now — avoided toying with Canada’s capital gains tax rates.
For good reason.
Bill Morneau, Prime Minister Justin Trudeau’s first finance minister, recognized that making Canada less attractive to investors would be “negative to our long-term growth.” A former CEO himself, Morneau could weigh the economic risks against the political appeal of stoking faux class warfare.
Chrystia Freeland, his replacement, resisted the temptation across three budgets — choosing instead to hit the Fat Cats with a “luxury tax” on fancy cars, boats and private jets.
The political calculus on capital gains appears to have flipped last October when Freeland hired Andrew Bevan, a top aide to former Ontario premier Kathleen Wynne. While Bevan may have pitched the PMO that boosting capital gains taxes would impact only the “ultra wealthy,” Team Trudeau seems to have forgotten all the reasons why they’d rejected the very same tax change for the past eight-plus years.
Several “economic justice activists” and a handful of purportedly “rich Canadians” support this retroactive tax grab, demonstrating their preference for socialist “wealth redistribution” over highvalue job creation. More instructive is the broad consensus among my fellow entrepreneurs that Freeland’s changes will harm Canada’s economic future.
How so? Look no further than Shopify, a global leader in the software sector.
Founded in Ottawa in 2006, Shopify has created thousands of knowledge industry jobs. Since its initial public offering, company shares are up more than 2,500 per cent — outperforming juggernauts such as Apple and Google.
As with many tech startups, stock options were broadly shared with Shopify’s early employees. The wealth those options generated has spawned more than 100 new angel investors; individuals who now have the investment capital to help commercialize the billions Canada invests each year in R&D.
A prime example is Backbone Angels, a collective of nine female Shopify employees, who have already put their new financial might and mentoring skills behind 42 female-founded startups.
Employees weren’t the only ones to participate in Shopify’s success: two Canadian venture capital funds were early backers, generating hundreds of millions in profit across multiple Canadian institutions. Those capital gains benefitted tens of thousands of Canadian pensioners.
As a local public company, Shopify’s stock market performance contributed to the returns of countless retail investors through their Canadian mutual funds and TSX60 ETFs. Valued today at $125 billion, Shopify — a firm that didn’t exist 20 years ago — is worth more than the shares of Scotiabank and National Bank combined.
All of which would have been lost had this one firm been started in Austin, Texas, instead of our own backyard.
You might think Texas is all cowboys and guns, but Austin has always seen itself as “a liberal bastion.” Almost Canadian.
Despite its roaring real estate market, you can find a townhouse for $417,000 (U.S.). Taxes are far lower in Texas, whether they be on income, capital gains, gas or beer. Although an entrepreneur will have to deduct $12,000 a year from her salary to pay for health care, she’d wait a mere 36 hours to get an MRI on her spine — unlike the 13month delay I just experienced in Canada’s largest city.
Proof that nothing is ever “free.” Austin-based entrepreneurs have the same market access as you’d enjoy in Ottawa and with remote work, one can hire the same global team. All you’re missing is the snow. Still unconvinced?
Last year alone, 660 different Canadian firms raised venture capital. Start-up founders use stock options to help recruit staff. This tax change makes those options less valuable to new employees, requiring across-the-board increases in cash compensation.
With already limited budgets, companies will have no choice but to hire fewer employees to bridge the gap — leading to less innovation and slower growth. Making it even harder to build the next Shopify.
By putting wedge politics ahead of what’s best for Canada’s future, Freeland risks more than she knows.
MARK MCQUEEN IS A TORONTOBASED ENTREPRENEUR WHO HAS WORKED ON BAY STREET FOR MORE THAN 30 YEARS. HE IS THE FORMER BOARD CHAIR OF TWO FEDERAL AGENCIES AND WAS AN ADVISER IN THE BRIAN MULRONEY PMO. HE IS A FREELANCE CONTRIBUTING COLUMNIST FOR THE STAR.