Will Canada’s Tax The Rich Plan Solve The Big Debt Problem?

Analysts predict that the incoming administration of Prime Minister Justin Trudeau would impose greater taxes on Canadians, which will assist to finance certain campaign pledges but are not wide enough to begin paying down the country’s record levels of debt, leaving Canada susceptible to the next economic catastrophe.

A riskier plan for the nation, which accumulated more debt than any of its G7 rivals during the epidemic, may not be the best option. There are long-term difficulties that need large government financing, including the transition from a fossil fuel-dependent economy towards a green one, that may be hindered by Canada’s high level of debt.

As a result of the pandemic, Canada’s post-pandemic debt-to-GDP ratio has increased significantly, limiting the country’s ability to react to future crises, experts believe.

Canadian debt “leaves little fiscal headroom” to deal with “severe new shocks,” the director of America’s sovereign ratings at rating firm Fitch Ratings, Kelli Bissett-Tom, said.

For the past month, the Liberal Party of Canada has pledged $63 billion in new spending over the next five years, or about 4% of GDP, partially offset by $25.5 billion in new tax revenues, most of which will go to cracking down on tax fraud, the wealthy, and the nation’s largest banks and insurance companies.

Canada’s Tax Rich Plan,

People who have been most resilient to the epidemic will be asked to pay for a variety of new initiatives, from mental health care to free school lunches. It will be impossible for the C$1 trillion national debt to be repaid or the budget to be balanced with those taxes. Some of the experts think that this will have a significant effect on the financial institutions and markets.

The Forex market, the world’s biggest financial market, is one illustration of this. The value of the Canadian dollar may fall in the near future as a result of the growing national debt. As a result, the number of investors who trade with the Canadian dollar may fall. This will have an impact on financial organizations such as Canadian Forex brokerages. As a consequence, the number of investors for these Canadian brokers may fall dramatically as a result of the country’s anticipated inflation hike, which will have an impact on the brokerages’ service prices. It is also worth noting that a future government may be forced to slash services or increase taxes in order to deal with the rising costs of debt, some experts have warned.

“The present generation will not have to pay back any of the costs of the epidemic. What a brave and dangerous move it is.” – Don Drummond, a Stauffer-Dunning fellow at Queen’s University, made the comments.

Tax The Rich Plan And The Debt

Canada is not the only country considering taxing the wealthiest in order to cover COVID-19-era expenditures. There are signs that public debt levels in Western Europe may not climb indefinitely, with countries like the United Kingdom implementing new tax policies to help begin paying down their debt.

Despite significant transfers to people and corporations, Canada’s total debt-to-GDP ratio increased by 36% last year to 118%, by far the highest rise in the G7 group of rich countries.

Fiscal discipline can be achieved through reducing Canada’s debt proportion of the GDP over time, but this fiscal “anchor is likely to fail during hard times,” according to BMO Capital Markets analysts in a post-election note.

As a result of their loss in the election on September 20th, Trudeau’s Liberals are still reliant on the New Democrats (NDP) to enact laws. In return for their support, that party might encourage the Liberals to increase expenditure.

Large banks and insurers would see a rise in their corporate tax rate, as well as an additional contribution from these corporations to help pay for the economic recovery, under the Liberals’ plans. The administration also intends to implement a top-income tax threshold.

“We had plenty of financial breathing room. We put a lot of it to good use during the epidemic, too “Professor Dominique Lapointe of Laurentian Bank referred to government stimulus measures as “record-breaking” in their efforts to boost the economy.

“People are now apprehensive because we utilized that budgetary space and we’re still introducing additional measures,” said one official.

Some analysts even believe that tax increases that narrow the widening gap between the rich and the rest of the population would be good for the economy in the long run.

It is also doubtful that the “austerity” measures used following the 2008-9 crisis would be reinstated since slow development, increased poverty, and social upheavals such as the 2016 Brexit vote in Britain are largely attributed to those years of austerity policies.

Investors are keeping a close eye on moves to increase personal taxes in key Western nations, and so far, they aren’t expecting a significant impact on economic growth or the stock market.

An estimated 0.5% of GDP is a result of the UK’s 1.25 percentage-point rise in National Insurance, for example. Brokerage AJ Bell estimates that a dividend tax increase will only cost those earning $10,000 per year in dividends an extra $100 per year. Even modest steps to reduce debt might have a favorable impact on the bond market.

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