Move aims to encourage companies to invest in domestic operations
Prime Minister Justin Trudeau’s government will propose a tax on corporate stock buybacks in an effort to encourage companies to invest in domestic operations and workers, Canadian Press reported.
The story, which cited an unnamed government official, didn’t elaborate on the plan that will be part of Finance Minister Chrystia Freeland’s budget update on Thursday. A person familiar with the document told Bloomberg News the report was accurate, without providing additional details.
Canada’s move follows the US, which imposed a 1% excise tax on corporate share buybacks as part of the Inflation Reduction Act signed into law by President Joe Biden in August. Freeland, who will speak in the Ottawa legislature around 4 p.m., is also expected to provide details of her response to other measures in Biden’s legislation, including new US incentives on clean energy.
There will also be new money to help some Canadians cope with the rising cost of living. Freeland will use some of windfall revenue gains this year toward helping students and low-income workers, according to the Globe and Mail, citing unnamed government sources. In March, Trudeau struck a power-sharing deal with the left-leaning New Democratic Party, which pledged to support his Liberals in the minority parliament in exchange for more spending on social programs.
Trudeau and Freeland are attempting to strike a balance between assisting Canadians with skyrocketing consumer prices and trying to promote business investment, while not adding fuel to inflation with excessive spending. Economists expect the larger-than-expected revenue gains will see this year’s deficit come in between C$20 billion ($14.7 billion) and C$30 billion less than the C$53 billion gap budgeted in April.
In September, Freeland announced a package of measures including a temporary increase in a sales-tax rebate for lower-income Canadians at a cost of C$2.5 billion ($1.8 billion) and a top-up to rental housing benefits worth about C$700 million.
The Canadian government is also facing pressure to deliver a robust response to new US investment incentives, with manufacturers calling for more generous support to build greener facilities and the oil and gas sector wanting Canada to catch up to the US on tax credits for carbon capture technology.
Biden’s buyback measure aims to encourage companies to use their cash to invest capital in expansion. But some executives say the tax isn’t large enough to be a major deterrent to share repurchases.
Copyright Bloomberg News
