Tag: hike

Businesses decry capital gains tax hike in letter to Freeland


Forging ahead with increasing Canada’s capital gains inclusion rate “sows division,” and is a “shortsighted” way to improve the deficit, business groups are warning Finance Minister Chrystia Freeland.


In a new letter sent to Canada’s chief financial steward and deputy prime minister, six of the country’s largest industry organizations are sounding off about the concerns they have that the policy change will stifle economic growth and come at the expense of future generations’ prosperity.


“Put simply, this measure will limit opportunities for all generations and make Canada a less competitive, and less innovative nation,” reads the letter.


“Whether through the diminishing (of) the creation of new companies and jobs, reducing the availability of medical practitioners, eroding hard-earned pension returns … or threatening the retirement plans of millions of Canadians who pinned their plans on the proceeds of selling a family cottage or a small business … the effects will ripple from coast to coast to coast.”


The Canadian Chamber of Commerce, the Canadian Federation for Independent Business, Canadian Manufacturers and Exporters, the Canadian Venture Capital and Private Equity Association, the Canadian Franchise Association and the Canadian Canola Growers Association are signatories.


The 2024 federal budget included a proposal to increase the inclusion rate on capital gains from 50 per cent to 67 per cent for individuals earning more than $250,000 in capital gains in a year, and for all corporations and trusts.


Since releasing the budget, Freeland and Prime Minister Justin Trudeau have faced pushback about the policy from doctors worried about their savings, and start-up-minded entrepreneurs.


The Liberals have repeatedly defended their plan to target Canada’s highest earners, and in the process rake in billions in additional revenue, as a fair way to help offset other major investments in housing and

Business investment faces crisis with capital gains tax hike

Canada’s economic forecast darkens with federal government’s increase to capital gains tax

According to the recent federal budget, the Trudeau government plans to increase the inclusion rate from 50 per cent to 66.7 per cent on capital gains over $250,000 for individuals and on all capital gains realized by corporations and trusts. Unfortunately, this tax hike will be the final nail in the coffin for business investment in Canada, which likely means even harder economic times ahead.

Canada already faces a business investment crisis. From 2014-22, inflation-adjusted total business investment (in plants, machinery, equipment and new technologies but excluding residential construction) in Canada declined by $34 billion. During the same period, after adjusting for inflation, business investment declined by a total of $3,748 per worker – from $20,264 per worker in 2014 to $16,515 per worker in 2022.

While business investment has declined in Canada since 2014, in other countries, including the United States, it’s continued to grow. This isn’t a post-COVID problem – this is a Canada problem.

And Canadians should be worried. Businesses investment is key for strong economic growth and higher living standards because when businesses invest in physical and intellectual capital they equip workers with the tools and technology (e.g. machinery, computer programs, artificial intelligence) to produce more and provide higher quality goods and services, which fuels innovation and higher productivity. And as firms become more efficient and increase profits, they’re able to pay higher wages, which is why business investment remains a key factor for higher incomes and living standards.

The Trudeau government’s policies – increased regulation, particularly in the energy and mining sectors (which makes Canada a relatively unattractive place to do business), higher and uncompetitive taxes, and massive federal deficits (which imply future tax increases) – have damaged business investment.

Unsurprisingly,

Scale of rate hike is shock therapy for UK’s inflation problem | Business News

Blimey.

The Bank of England was always going to increase its Bank rate this month. But every economist had expected only a quarter percentage point increase.

There was good reason for this.

Although inflation data had been higher than expected this week, the bank had been slowing down the rate at which it was lifting borrowing costs. So too had its counterpart central banks around the world, most notably the Federal Reserve in the US and the European Central Bank.

Typically a quarter percentage point increase is considered a “normal” increase. And while some investors had begun to bet on a bigger rate increase this month, most people expected another normal increase.

Well, the bank’s monetary policy committee (MPC) has surprised them with a bigger increase.

It’s a sign, if any were needed, of just how worried it is about inflation, which looks like it is becoming dangerously sticky.

The stickier it gets, the harder inflation is to bring down, hence why the bank is taking this more radical step.

It is a form of shock therapy that it hopes will send out a clear message: when it comes to inflation-fighting, it’s not messing around.

The problem is that some will depict it as a form of panic.

The bank has been roundly criticised for failing to forecast the sharp increase in inflation in the last couple of years. It has been criticised for being too slow to respond. Now it is responding far more quickly, but some will argue that this is a problem of its own making.

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What’s keeping inflation so high?

And an increase like this will have a bearing on households. For as economic tools go, interest rates are a particularly blunt instrument.

Cutting

US banks could face 20% capital hike under new global rules

WASHINGTON, June 5 (Reuters) – U.S. banks could face capital hikes of as much as 20% under new rules being prepared by U.S. regulators as part of a global effort to harmonize capital requirements, a person familiar with the matter said on Monday.

U.S. regulators, led by the Federal Reserve, are expected to unveil the proposed tougher requirements by the end of this month, according to this source, who spoke on condition of anonymity.

The proposal is expected to implement a final batch of global bank capital rules laid out by the Basel Committee of banking regulators that are due to take effect at the beginning of 2025.

The Wall Street Journal first reported the forthcoming proposal.

Michael Barr, the Fed’s top regulatory official, told Congress last month that the central bank would likely unveil its plan to ratchet up capital rules for banks this summer and ensure supervisors more aggressively police lenders following the bank failures. Barr, the Fed vice chair for supervision, added that the central bank was “carefully considering” rule changes for larger regional banks.

Randal Quarles, who led Fed regulations before Barr, cautioned in a 2021 speech that fully implementing the remaining Basel requirements could result in capital requirements increases of as much as 20% for the largest banks.

The Wall Street Journal reported that the precise amount of capital requirements will depend on a bank’s business, with U.S. megabanks with big trading businesses expected to face the largest increases.

Banks such as Morgan Stanley (MS.N) and credit card giant American Express (AXP.N) that are heavily dependent on fee income, such as from investment banking or wealth management, could also face large capital increases, the Journal reported.

Canada’s economy grew by more than expected in first quarter, upping odds of rate hike next week

The Canadian economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, Statistics Canada reported Wednesday.

The latest data shows growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy grew by 0.2 per cent in April, after remaining flat in March.

The ongoing resilience in the economy will likely spur discussions of a potential rate hike, as the Bank of Canada is expected to make its next interest rate announcement next week.

The relatively strong GDP showing had investors increasing the odds of a rate hike when the central bank meets next week. Prior to the GDP numbers, trading in investments known as swaps was implying a litle over a one-in-four chance of a hike. 

Now, those odds are better than one-in-three.

Statscan says growth in exports and household spending helped spur growth in the first quarter. On the other side of the ledger, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.

Tuan Nguyen, an economist with consulting firm RSM Canada, says the GDP numbers “blew past expectations.”

“After a slow final quarter of last year, the Canadian consumers and businesses came out strong in the first quarter, defying rising recession concerns that most market participants have been talking about,” Nguyen said. “There is no doubt that the data pointed to a hot economy, explaining why underlying inflation has remained elevated.”

Stubbornly high inflation

The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.

The household spending figures show spending up on both goods and services in the first three months of