This article was originally published in the Financial Post on January 8, 2021. 

The NDP can salivate all it wants over the prospect of a wealth tax, but eating the rich would hardly satisfy Prime Minister Justin Trudeau’s appetite for spending. The parliamentary budget officer says a wealth tax might have brought in $5.6 billion this year. But the Trudeau government is currently spending $1.8 billion per day. In any given week, it would burn through the wealth tax by Wednesday. 

Although the Liberals voted against the NDP’s mid-November motion calling for a wealth tax the threat is far from dead. After the government released its fall economic statement, NDP Leader Jagmeet Singh’s first criticism was that it had failed “to make the ultra-rich pay for the recovery.”

But debating new tax measures is failing to see the forest for the trees. This government doesn’t have a revenue problem. It has a spending problem that no amount of new taxes can fix — although that probably won’t stop Mr. Trudeau from trying. For someone who said that “the last thing Canadians need is to see a rise in taxes right now,” he sure has raised a lot of taxes. In April he raised the carbon tax. In November he announced new consumer taxes on digital platforms such as Netflix, Spotify, Airbnb, and Amazon. And to ring in the New Year he raised  payroll and alcohol taxes.

Though they voted against the NDP’s most recent wealth tax proposal, the Liberals seem to be waffling. When challenged by Singh on the topic of a wealth tax, Finance Minister Chrystia Freeland replied that “we all need to pay our fair share, especially in times of crisis.” You can be sure the NDP will be trying hard to convince the Liberals to include a wealth tax in their spring budget, so it’s worth re-examining the problems with it now.

The first is uncertainty. The parliamentary budget officer noted that a “behavioural response could be expected,” and as a result its projections are “highly uncertain.” A Canadian wealth tax might generate $5.6 billion for the government, or it might not.

What we do know is that it would add a significant burden of administrative complexity to an already beleaguered Canada Revenue Agency. The CRA currently employs over 40,000 bureaucrats and costs taxpayers $4.3 billion per year. Calculating income for tax purposes is comparatively straightforward. Calculating wealth is a complex undertaking.

Ask the five dragons on the TV show Dragon’s Den what a company is worth and you’ll get five different answers. Is a cash-poor farmer wealthy simply because the family farm’s acreage has appreciated over the years? The definition of wealth is open to interpretation, which will cost taxpayers in at least two ways: for the army of bureaucrats who would need to specialize in valuation and for the mountain of legal bills that would have to be paid as disputes accumulated.

Perhaps most troubling is the very real prospect of an exodus of capital out of Canada as the wealthy react to the imposition of the tax. That’s a key reason why many European countries that had wealth taxes in the 1990s have since abandoned them. France was the only E.U. member that still had one until President Emmanuel Macron ended it in 2017. “My predecessor taxed the wealthiest and those who succeeded like never before. What happened? They left,” explained Macron.    

All taxpayers would suffer if Canada’s wealthiest left. The wealthy grow their money by investing it. Some investments go to entrepreneurs that grow businesses and spur the economic growth needed for Canada’s recovery.

Like most get-rich-quick schemes, the NDP’s fixation on taxing the “ultra-rich” is not only too good to be true; it could also have nasty side effects. A wealth tax is not a serious solution to fixing the fiscal mess. The government needs to control its spending instead.