Written on behalf of Feigenbaum Consulting
A recently completed report by Canada’s Parliamentary Budget Officer (PBO) looked at how much money could be raised if the country implemented a wealth tax. The report came at the request of the NDP’s Finance critic, Peter Julian, who represents the riding of New Westminster-Burnaby.
The request specifically asked the PBO to use its recently published wealth model to estimate the revenues of an annual net wealth tax on Canadian families equal to 1% of all net wealth above $20 million. The report concluded that such a tax would net the government $5.6 billion in annual revenue.
How did the PBO calculate who would qualify?
The PBO maintains a high-net-worth family database. Family net wealth is calculated as the sum of financial assets and non-financial assets, minus liabilities. The report noted that lottery winners of over $20 million were not included. They then compared the total number of families to the financial growth rates (current and projected) for the rest of the country. The PBO then reduced each family’s net worth by 35% (stating this is “an estimated behaviour response rate, based on adjusted findings from the IRS”). Through this method, the PBO was able to determine data on which families have or are projected to have net wealth of over $20 million. The $5.6 billion figure is equal to 1% of that wealth over $20 million. It should be noted that administrative costs equal to 2% of gross revenues was estimated.
The PBO estimates that 13,800 Canadian families would be eligible for a net wealth tax if one were to be implemented.
Why was the request made?
The NDP made the request following the publication of another report by the PBO issued on June 17, 2020. This report examined what percentage of the country’s wealth was held by the country’s wealthiest families. The results of the report led the PBO to conclude that “Canada’s wealthiest families have significantly more wealth than recorded in the SFS PUMP (which is the Survey of Financial Security Public Use Microdata File). How much wealth did the report determine was held by the top 1% of Canada’s richest families? Roughly $3 trillion, or 25.6% of the country’s total wealth.
Yves Giroux, Canada’s Parliamentary Budget Officer spoke on the discrepancy between what the report stated and what had previously been understood, saying:
“When we looked at the number from StatsCan in their survey, the wealthiest person had self-declared wealth of $27 million and we know that there are people in Canada that are richer than that. We were not surprised there would be upward revisions but to that extent, I was personally surprised to see it was that much.”
The future of a wealth tax?
Of course, this exercise is more academic in nature than it is practical. Some reports, such as one issued by the Broadbent Institute, state that 75% of respondents indicated they were favourable to a wealth tax of 1-2% of large fortunes. Of course, Canada’s political parties have different opinions on whether or not wealth should be taxed, and if so, how it should be implemented. The NDP, which arguably has called loudest for a wealth tax, says,
“The new PBO analysis clearly shows that the concentration of wealth by the top 1 percent is an even bigger issue than previous government reports had been letting on and it appears there was an intentional under reporting of wealth to keep Canadians in the dark.”
We will continue to monitor the situation and will provide updates as necessary.
Contact Feigenbaum Law to speak to an experienced tax lawyer about your personal tax planning needs. We unparalleled knowledge of US and Canadian tax laws and are leaders in this field. We offer services to clients in the US, Canada and around the world. Reach out to us online to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.