(Bloomberg) -- Chrystia Freeland would drop the Canadian government’s policy of raising the capital gains inclusion rate if she wins the race to replace Justin Trudeau as prime minister, according to a person with knowledge of her plan.
It’s a major reversal for Freeland, who introduced that capital gains hike in April as Trudeau’s finance minister. She argued at the time that it was fair for the government to ask companies and investors to pay more to provide additional revenue for the government.
The election of Donald Trump, who has pledged to extend tax cuts implemented in his first term, has changed the situation. Freeland now believes the tax hike no longer makes sense for Canada because of the risk that Trump’s nationalist policies, including tariffs against foreign goods, will draw investment away from its trading partners, said the person, speaking on condition they not be identified.
Freeland is trying to build her campaign for the Liberal Party leadership around the message that she’s the one to fight Trump on his threat to impose 25% tariffs on Canadian products.
“If you hit us, we’ll hit back,” she said in her leadership launch speech on Jan. 19, promising so called “dollar-for-dollar” retaliation against US tariffs. “If you force our hand, we’ll inflict the biggest trade blow that the United States has ever endured.”
Freeland faces tough competition in the leadership race from Mark Carney, the former governor of the Bank of Canada and Bank of England. He opened his campaign last week by saying he has a track record of handling economic crises and that he wants to introduce major economic reforms to boost growth and productivity.
Both of them are aiming to win over Liberals as polls show Canadians are deeply worried about the economy. There’s not much time for a new leader to turn around the fortunes of the party, which is well behind Pierre Poilievre’s Conservatives in opinion surveys. A national election is due this year and could begin as soon as late March.
Billions in Revenue
Before resigning as finance minister last month, Freeland fought to renew a major package of tax incentives on capital costs for businesses, which she argued were necessary to keep Canada competitive with the US.
Still, Freeland had been the face of her government’s capital gains tax hike, and she championed it repeatedly over the past year despite strong opposition from parts of the country’s business community, right up until she quit as finance minister in mid-December.
The move raised Canada’s inclusion rate to two-thirds, from one-half, on companies and on individual investors booking a gain of more than C$250,000 ($174,150) in a year. The government projected it would bring in more than C$19 billion over five years, with some of the revenue being earmarked for housing measures and other social programs.
Canada’s tax collection agency put the capital gains increase into effect after a preliminary motion was introduced in the House of Commons, but legislation to enshrine it in law has never been passed.
If Freeland wins the Liberal Party leadership race that’s scheduled to conclude March 9 and becomes prime minister, her government would not introduce that legislation, said the person close to her.
Whether the tax hike would ever take effect was already in doubt once Trudeau resigned and simultaneously moved to temporarily suspend Parliament until March 24.
Poilievre has come out against the capital gains hike and promised to look at broader tax reform if he wins the election. Opinion polls give the Conservatives a double-digit lead over the Liberals, putting them in a position to win a significant majority in the House.
(Updates additional information beginning in the fourth paragraph.)
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