However the term ‘rich’ is defined, their selective taxation does not pay due to longer-term indirect effects, says a study by the Montreal Economic Institute. Penalizing those who create wealth gives rise to a number of adverse effects that threaten the prosperity of all Canadians, it says. Increasing the tax burden means the government would push economic actors to invest less, to work less, to move, and to export their capital and wealth. “These negative effects are often missing from the public debate, yet they deserve to make up an integral part of it. For example, Austria, Germany, Sweden, and France eliminated their wealth taxes because of the economic harm they caused,” says Nathalie Elgrably, senior economist at the institute. The study outlines several popular fiscal measures that are bad for the economy. For example, a one per cent wealth tax, levied on fortunes over $10 million is politically alluring, but it is difficult to implement. Defining what constitutes taxable wealth, calculating the value of the assets of which it is composed at the precise moment when the tax is calculated, and curbing the problems of tax avoidance and capital migration are all obstacles to its implementation and administration. This measure also discourages saving and investment as it reduces returns. “Taxation is a delicate area where governments must act with a great deal of caution. Like nuclear energy that can illuminate cities if it is used properly or destroy them if it is not, taxation can fund public interventions, but can also dig an economy’s grave,” says Elgrably.
- PWC