Former Bank of Canada Governor David Dodge has few nice things to say about the federal government’s latest budget and instead argues it will hurt large swaths of Canadians and the country’s economy.

Dodge, an economist who led the Bank of Canada from 2001 to 2008, said the federal budget and recent provincial budgets are “not very helpful” to the central bank’s pursuit of stable inflation.

“That's unfortunate,” he told BNN Bloomberg in a television interview on Thursday. “The big problem is that most of what the minister did was to concentrate on raising current consumption rather than promoting investment in machinery, equipment and intellectual property, which is really necessary in order to provide workers with the capital that will allow them to be more productive.”

Dodge has a particular gripe with the federal government’s hike on capital gains tax, which brings the inclusion rate from one-half to two-thirds for gains realized by trusts and corporations. The two-thirds inclusion rate will only apply to individuals with capital gains realized annually over $250,000. 

“It simply makes Canada a less attractive place for that investment to take place, certainly less attractive for small start-ups in this country,” he said. “Start-ups really rely on paying their people with shares and the capital gains tax simply makes that less attractive again.”

The budget, Dodge argues, also hurts millennial and Gen Z Canadians, despite the government’s insistence to the contrary, as the debt is slated to climb further.

“The government said that they were going to try to boost the optimism of 20 and 30-year-olds and their ability to participate in the economy, but in fact, by simply raising the amount of debt outstanding … it's these young voters that are going to be saddled with the debt going forward.”

“We have a budget which is very unhelpful for them over the medium term.”

Pension funds

As part of its budget announcement, Finance Minister Chrystia Freeland announced the hiring of former central bank governor Stephen Poloz to figure out ways to entice Canadian pension funds to invest more locally.

Dodge said the recent pressure on pensions to keep their investments in Canada comes from a misunderstanding of pension funds’ priorities.

“The job of a pension fund is to raise money to pay pensioners,” he said. “The pension funds and the pension funds are going to invest where they can get a reasonable return.”

“It's not that they are anti-Canada in terms of their investment, it's the types of investment that they make – long-run investments, with a focus on infrastructure and infrastructure-like investments – we in Canada do not provide the opportunity to make those investments here.”

Dodge said pension funds like to invest in projects like privatized airports, toll roads and privatized ports, which Canada has few options for.

“It’s not surprising that our pension funds have to go abroad to make those sorts of investments,” he said.

“It's a failure of our inability and unwillingness – governments, federal and provincial – to provide those opportunities.”

With files from BNN Bloomberg’s Daniel Johnson and Bloomberg News