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Opinion: Ottawa’s message is clear: Growing businesses should look elsewhere

Open this photo in the gallery:

Deputy Prime Minister and Minister of Finance Chrystia Freeland stands in the House of Commons during question period on Parliament Hill in Ottawa on May 2.Sean Kilpatrick/The Canadian Press

Dan Daviau is President and CEO of Canaccord Genuity, Canada’s leading independent investment dealer.

Canada is home to a diverse and highly skilled workforce, and we have the most educated talent pool in the world. The proliferation of remote work has also made it easier for growing companies to access talent outside of major urban centers, creating the ideal context for a robust innovation economy and enhanced global competitiveness.

So why do we have a stock market dominated by old economy sectors that provide limited support to high-growth sectors such as technology, healthcare and sustainability?

The reason is obvious to me. Unlike old economy sectors like banking, railways and utilities, companies in our most dynamic growth sectors can find better opportunities to support their growth ambitions outside of Canada.

The federal government’s ill-conceived proposal to increase the capital gains tax creates a new burden on entrepreneurs because it will discourage private investment in growing businesses.

This has long-term consequences for all Canadians, as job creation and tax contributions from these companies and their employees will be lost forever.

In more than three decades as an investment banker and now at the helm of Canada’s largest independent investment bank and wealth management firm, I have had the privilege of working alongside the most successful entrepreneurs most dynamic in our country and many wise investors. Those among them who are willing to take a little more risk do so in the hope of getting better returns.

I can say with conviction that Canada has always been very successful at starting new businesses and developing talent, but as a nation we are falling behind in growing businesses to become the next world leaders.

For context, the average market capitalization of publicly traded Canadian companies has doubled over the past decade. While this trend may seem positive, it masks a much deeper problem. The number of companies listed on our major exchanges has fallen by more than 20 percent over the same period.

Large, mature companies dominate our public investment landscape, leaving smaller players struggling to invest and often forced to seek opportunities outside of Canada.

Canada’s benchmark stock index is primarily made up of old economy stocks, with banks and insurers accounting for 30 per cent of total market capitalization. The median age of the 15 main constituents of the S&P/TSX Composite Index is almost 100 years.

Unlike our new, growing companies that reinvest all of their profits into our economy, many of these mature companies pay significant dividends that do not need to be reinvested in Canada. However, according to the change proposed by Ottawa, these dividends will be taxed at a lower rate than that of Canadian companies. capital gains.

In contrast, the U.S. stock market thrives on technology and healthcare companies driving unprecedented innovation, job creation and economic growth. An impressive 30 percent of the S&P 500 index is made up of technology companies, and most of them were founded after 1970.

With fewer growing companies in Canada, younger investors seeking the gains that previous generations achieved by investing early in now-mature sectors have limited domestic opportunities for long-term wealth creation.

In this context, it is not surprising that our country’s most influential pension funds have had to diversify their investments outside of Canada in pursuit of long-term growth and capital preservation, limiting increasing access to capital for Canada’s entrepreneurial and growing businesses.

At a time when it is essential for our country to compete and win on a global scale, Canada is losing some of its most promising businesses, skilled workers and intellectual property to the United States and other markets that can offer exceptional growth prospects and a lower cost of capital. .

A strong, competitive economy requires increased support for innovation and tax policies that help generate and retain wealth within our borders.

Rather than penalizing and discouraging them in their early stages, our government should create greater incentives and reduce the tax burden to stimulate investment in sectors of the modern economy and help growing businesses grow from 10 million dollars to $1 billion and beyond.

Instead of subjecting them to higher taxes, our government should do the opposite and exempt investors in the growing economy from capital gains. This will attract more capital, which will create new jobs and investment.

Canada is a great country, but businesses and wealthy Canadians can and often do leave due to our high personal and corporate tax rates, many of them looking for business opportunities which are simply not supported in the country. Job creation and other long-term economic benefits for our country go with them.

Simply put, increasing capital gains tax hurts growing businesses. In doing so, our current federal government is telling these companies to look elsewhere.