Sean Kilpatrick/The Canadian Press
Jonathan Berkshire Miller is the co-founder and principal of Pendulum Geopolitical Advisory, based in Ottawa.
The United States, our most important trading partner, is again retreating inward – risking supply chains, making everything more expensive for exporters and undermining the stability upon which our prosperity has rested for so long.
Meanwhile, we also have a host of authoritarian actors – such as China and Russia – that continue to take advantage of a crumbling international system and are looking to establish a new economic order.
Here, “business as usual” will not suffice. We can’t rely on the worn-out playbook of bought-and-paid-for access to the U.S. market or incremental domestic transformation. We need to be bold and make Canada not just immune to Donald Trump’s tariffs but attractive enough to divert capital, brains and innovation away from rival markets.
That means going beyond trimming Trudeau-era spending or offering marginal corporate tax relief. It means eliminating the capital gains tax altogether.
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Canada’s productivity record is terrible. We’ve lagged behind our G7 allies for decades, and the gap continues to widen. Canadian companies are investing fewer dollars per worker in technology, equipment and research than their rivals. The result: Our workers are less productive, and therefore paid less, than employees in other advanced economies.
The ultimate issue is not a shortage of talent or capital – Canada has both in abundance – but too little investment. Entrepreneurs and firms are working in an environment that frowns on risk-taking. If rewards on capital are taxed, investors are being charged for putting money into innovative new ventures, expanding businesses and even their own enterprises. They invest elsewhere, far too often south of the border.
If the capital gains tax were eliminated, it would supercharge Canadian investment. It would unleash a gusher of risk capital into startups, scale-ups and infrastructure projects that are currently underfinanced. Canadian investors would have a much stronger incentive to invest in Canadian innovation.
Critics argue that such a reform would disproportionately benefit the wealthy. There is no doubt investors would gain, but this vision is short-sighted. The true beneficiaries would be Canadian businesses and workers. A surge of new capital would mean more startups, more expansion and, ultimately, more jobs.
Mr. Trump’s protectionism adds urgency to this reckoning. With rising tariffs and “Buy American” provisions spreading, Canada cannot assume automatic access to the U.S. market any more.
We can’t fight this battle by emulating Washington’s protectionism – we’re too small, too dependent on exports. We can’t follow America’s subsidy factory model either.
What we can do is change the fundamentals by making Canada the most attractive country in North America in which to invest, launch a business and take a risk. Reducing or eliminating capital gains taxes would send precisely that message, balancing the drag of U.S. tariffs with a source of international capital.
But this reform must also be guided by principle. A capital-gains-free Canada should not become a magnet for authoritarian wealth. Ottawa must ensure that the benefits are directed toward like-minded partners – firms and investors from rules-based economies. We shouldn’t open the door to corrosive investment from regimes such as China and Russia. By aligning tax reform with our values, Canada can position itself not just as an economic competitor, but as a beacon for high-quality, principled investment that strengthens our alliances and reinforces our sovereignty.
Doubters will ask: Can we afford to forgo this revenue? The answer is, can we afford not to? Though capital gains taxes contribute to government coffers, they are a relatively small portion of total federal revenues – less than personal income taxes, corporate taxes or even consumption taxes such as the GST. However, the growth slowdown that results from discouraging investment is enormous.
By unleashing higher productivity and stronger growth, abolishing capital gains taxes would eventually make the tax base wider. More jobs, better wages and more prosperous businesses would generate more income and consumption tax revenues. Over time, the reform would pay for itself and then some.
Prime Minister Mark Carney has the political capital to act. By combining fiscal responsibility – ending wasteful spending and re-establishing discipline – with bold reforms such as rolling back capital gains taxes, his government can reset Canada’s trajectory. It can transform it.