Deputy Prime Minister and Minister of Finance Chrystia Freeland rises during Question Period, in Ottawa, on June 11.Adrian Wyld/The Canadian Press
Arlene Dickinson is general partner at District Ventures Capital.
The federal government is imposing an additional tax on capital gains in excess of $250,000, hiking the inclusion rate from 50 per cent to 66.7 per cent, and supposedly using the money to “invest in Canada and Canadians.”
According to Finance Minister Chrystia Freeland, “The responsible way to pay for those investments is to ask those at the top to contribute a little bit of money.” Ms. Freeland went on to describe a future in which the elite wall themselves off and “the wrath of the vast majority of their less privileged compatriots burns so hot.”
Last I heard, two-thirds is more than a “little bit” and invoking the rhetoric of class warfare is not only irresponsible but dangerous. The truth is this tax policy isn’t really about taking from the rich and giving to the poor. It’s about discouraging risk-taking and – intentionally or not – punishing those entrepreneurs who succeed in beating the odds, and who grow our economy in doing so.
This country, like all countries that aren’t welfare states, needs entrepreneurs. Their innovations add value to the economy and help keep Canada globally competitive. And they create jobs – millions of them, according to the government. Small and medium-sized companies contribute more than half of Canada’s gross domestic product. So why exactly would we want to tax their founders out of existence? And how on earth would it be “responsible” to discourage aspiring entrepreneurs from trying to create even more jobs?
News flash: Building companies is a risky business. Many entrepreneurs start with nothing bigger than a dream and the courage to pursue it – with no safety nets, paid vacations, pensions or benefits. I think of people such as Andrew Maida of Flourish Pancakes, who sacrificed for years with no money, even sleeping in his car, to ensure that his business idea of a healthier breakfast became a reality.
Full disclosure: I’m an investor in Andrew’s company and I’m thrilled that it provides jobs for many Canadians, his products are sold across the country and he can finally pay himself a decent wage while continuing to grow his business.
Like most people, entrepreneurs are incredibly hard-working folks, yet fully 80 per cent of startups fail. Many founders of businesses work for almost nothing and then are left with nothing to show for their years of effort except significant debts.
The successful ones, through job creation, help make it possible for literally millions of other Canadians to put gas in their cars, food on their tables and clothes on their children’s backs. Yet very few are fat cats.
We aren’t talking about gazillionaires such as Elon Musk or Mark Zuckerberg here (despite the sound bites about the government’s policy somehow affecting only folks like them). We’re talking about people, like Andrew, who have toiled for years against great odds and, yes, may one day see a nice return for taking on all those risks (and enduring great stress, having everything on the line). In many cases, the entrepreneur’s return will be less than it would be if they had worked a traditional job and put money away in an RRSP or a tax-free savings account, maybe investing their savings in the stock market or real estate.
And for those few business founders who do hit a massive home run? We should be cheering loudly for them, because their businesses add megadollars and value to our economy. Think of the value that Shopify Inc. has added to our economy because chief executive officer Tobias Lütke took great personal financial risks. His company – which he and his partners could, by the way, have easily chosen to develop in Silicon Valley – is innovative, globally recognized and has created thousands of jobs. It’s great for Canada and great for Canadians.
I have yet to meet a Canadian entrepreneur who doesn’t love this country. But since this tax announcement, and the accompanying class-war rhetoric our politicians are happily headlining, I have heard from more and more entrepreneurs who feel insulted and disheartened, and think they are vilified for taking personal risks, innovating and helping our economy. Many are now seriously considering leaving the country or have already packed their bags. That exodus would be a disaster for Canada.
When taking risks is penalized via bad tax policy, entrepreneurial innovation withers, job creation slows and economic growth stalls. We all lose, which is why every Canadian should care about this particular tax policy. The government has, fundamentally, through one ill-conceived motion, declared war not just on entrepreneurs but on our futures – mine, yours and the next generation’s.