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CALGARY — Eliminating Alberta’s provincial capital gains tax could increase Albertans’ disposable income by about $1.1 billion a year while encouraging investment, entrepreneurship and job creation, according to a new report from the Montreal Economic Institute.
The report argues capital gains taxes discourage investment by encouraging investors to hold onto existing assets instead of redirecting money into new businesses and projects, a phenomenon economists refer to as the “lock-in effect.”
Gerard Lucyshyn, the institute’s vice-president of research and author of the report, said the tax weakens incentives for entrepreneurs and investors.
“Capital gains taxes weaken the incentives that fuel entrepreneurship, innovation, and long-term economic growth,” Lucyshyn said.
The report says eliminating Alberta’s share of the capital gains tax would reduce provincial tax revenue by an estimated $431 million annually but would leave Albertans with an additional $1.1 billion in disposable income.
It also argues the policy could help address between 58 and 97 per cent of Alberta’s projected labour shortages by encouraging additional investment and business growth.
The report points to a decline in Canadian entrepreneurship over the past two decades, noting the number of self-employed Canadians with paid employees has fallen nearly 18 per cent despite population growth.
It also cites the federal government’s abandoned proposal to increase the capital gains inclusion rate from 50 per cent to 66 per cent as evidence investors are sensitive to changes in capital gains taxation.
“Investment follows incentives,” Lucyshyn said. “Lowering the tax burden on capital allows money to flow toward new businesses, innovation, and productive projects instead of remaining locked in existing assets.”
The report points to countries including Singapore, New Zealand and the United Arab Emirates, along with several U.S. states, as jurisdictions that have reduced or eliminated capital gains taxes to encourage investment and improve competitiveness.
The Montreal Economic Institute is an independent public policy think tank with offices in Montreal, Ottawa and Calgary.
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