Canadian taxpayers face rising rates under the new policy.
Federal tax policy has consistently presented challenges for Canadian taxpayers over the past several years, including 2024, 2023, and 2022, and is projected to continue its difficult trajectory through 2025. This trend is particularly notable given the Trudeau government’s establishment of the 33 percent income tax bracket in 2016, resulting in combined federal and provincial top tax rates exceeding 50 percent in every Canadian province except Alberta (48.0 percent) and Saskatchewan (47.5 percent). This sustained high level of taxation represents a significant financial burden on individuals and businesses across the country.
The increasing tax burden began with the implementation of the Canada Pension Plan (CPP) tax hikes. Starting in 2018, before the government’s CPP “enhancements,” a worker earning $85,000 faced a combined employer/employee CPP tax of $5,188. By 2024, this same worker’s tax bill rose to $8,111 — a staggering 56 percent increase, driven largely by the government’s new “CPP2” tax. Looking ahead to 2025, the CPP tax bill for an individual earning $85,000 is projected to reach $8,860, representing a further 71 percent increase—the cumulative impact of seven annual CPP “enhancements.” The frequent adjustments to the CPP tax rate, often framed as “enhancements,” have created a consistently higher financial obligation for Canadians.
Adding to this tax pressure is the ongoing carbon tax, initially introduced at $65 per tonne in April 2024, then increased to $80 per tonne, and scheduled to rise again to $95 per tonne this year. This carbon tax, designed to incentivize a shift away from fossil fuels, has contributed significantly to the overall tax burden, adding another layer of cost for both households and businesses. While proponents argue the carbon tax is necessary for environmental protection, economists consistently point to its negative impact on the Canadian economy.
Furthermore, in June 2024, the Trudeau government implemented a capital gains tax hike, a change that has generated considerable debate and concern. The government asserted it was only affecting “0.13 per cent of Canadians in any given year”—a statistic that was immediately challenged for its incompleteness. While the actual percentage of taxpayers subject to the increased tax rate may fluctuate year to year, a more comprehensive analysis revealed that approximately 4.74 million Canadians, representing 15.8 percent of tax filers (based on 2021 data), would eventually be impacted over their lifetimes. The significant impact extended beyond individual investors, affecting corporations that many Canadians own or are part-owners of. Economists, such as Jack Mintz, have estimated that roughly 4.74 million Canadians – or 15.8 percent of tax filers – are affected by the higher tax rate.
Adding to the complexity is the government’s two-month sales tax “holiday,” implemented in 2024, primarily aimed at administrative and logistical challenges for businesses. Despite the intention to boost economic activity, it ultimately increased bureaucratic costs and did nothing to improve economic incentives. The increased capital gains tax also reduces business investment. As many economic analyses have shown, business investment in Canada has fallen further behind rates in the United States and other developed economies, contributing to Canada’s productivity and economic stagnation crisis. Higher capital gains taxes will only exacerbate this problem.
Finally, the 2024 tax year concluded with a significant financial outcome: the government’s ongoing increases contributed to rising deficits, which, in turn, result in further tax burdens in the future. Looking ahead to 2025, the trend remains unfavorable, with projections indicating that the cost of these taxes will continue to rise. Matthew Lau, a Toronto writer and adjunct scholar at the Fraser Institute, consistently highlights these concerns.
The sustained and escalating impact of federal tax policy on Canadian finances—particularly the combination of CPP tax increases, the carbon tax, and the capital gains tax hike—underscore a significant challenge for the country’s economic future.
