New book says Canada should eliminate capital gains taxes based on international evidence

Contacts:

Herbert Grubel, Senior Fellow
The Fraser Institute
Tel: (604) 688-0221, ext. 543 or (604) 980-7922
Email: herbg@fraserinstitute.ca

For Release: 6 December 2001

VANCOUVER, BC— Canada should eliminate its capital gains tax to spur economic growth and look to other international jurisdictions such as Hong Kong and Switzerland for their experience, says a new book, International Evidence on the Effects of Having No Capital Gains Taxes, edited by economist Herbert Grubel and released today by The Fraser Institute.

"It is important for Canada to consider international competitiveness in setting policy on capital gains taxation. There are a number of countries in the world that have considerable experience in running a tax system without capital gains taxation," says Grubel, Professor Emeritus at Simon Fraser University and a Senior Fellow at The Fraser Institute.

In September 2000, The Fraser Institute held the 2000 Symposium on Capital Gains Taxation at which economists from nine countries addressed a number of issues critical in assessing the consequences of having no capital gains tax, including countries' experiences with the use of indexing of capital gains due to inflation. The papers presented at this symposium are contained in this new book.

In the first part of the book, Grubel examines the economic arguments for and against the elimination of the capital gains tax in Canada. The second part contains papers written by experts on countries without capital gains taxes: Barry Hsu and Chi-Wa Yuen on Hong Kong; Peter Kugler and Carlos Lenz on Switzerland; Robin Oliver on New Zealand, and Francisco Gil-Diaz on Mexico.

"The evidence from other countries is important for assessing the empirical merit or arguments against the elimination of the capital gains tax in Canada," says Grubel.

On the issue of economic growth and revenue, the experience of the Swiss cantons shows that the elimination of the tax can raise income by significant amounts," he continues "On the issue of the ability of taxpayers to shift taxable income into non-taxable capital gains, evidence from Hong Kong and New Zealand shows it to be limited quite effectively by appropriate laws and regulations."

Part three discusses the experience countries have had with the inflation-indexation of capital gains; Barry Bracewell-Milnes on the United Kingdom; John Freebairn on Australia, and Moore McDowell on Ireland. Those papers show that countries with inflation indexing for capital gains have a fairer and more efficient capital gains tax.

"The elimination of the capital gains tax would increase the rate of capital formation, foreign investment, and growth in productivity, and, therefore, raise the living standards of all Canadians," concludes Grubel.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver with offices in Calgary and Toronto.