As published in The Globe and Mail

Canada is home to a diverse and highly skilled work force, and we have the most educated talent pool in the world. The proliferation of remote work has also made it easier for growing businesses to access talent outside major city centres, creating the perfect backdrop 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 for high-growth sectors such as technology, health care and sustainability?

The reason is obvious to me. Unlike old economy industries such as banks, railroads 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 raise the capital-gains tax creates a new burden for entrepreneurs because it will disincentivize private investment in growing businesses.

This has long-term implications for all Canadians because the job creation and tax contributions by these businesses and their employees will be lost forever.

In more than three decades as an investment banker, and today leading Canada’s largest independent investment bank and wealth management firm, I have been privileged to work alongside our country’s most dynamic entrepreneurs and many astute investors. Those of them willing to take on a little more risk do so for the prospect of enhanced returns.

I can say with conviction that Canada has historically performed very well at starting new businesses and developing talent, but as a nation, we fall behind at scaling companies to become the next global leaders.

For context, the average market capitalization of publicly traded Canadian companies has doubled over the past decade. While this might seem like a positive trend, it masks a much deeper issue. The number of listed companies on our primary stock exchanges has declined by more than 20 per cent over the same period.

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

Canada’s benchmark stock market index is mostly populated with old economy stocks, with banks and insurers representing 30 per cent of the total market capitalization. The median age of the top 15 constituents in the S&P/TSX Composite Index is almost 100 years.

Unlike our growing newer companies that are investing all their profits back into our economy, many of these mature companies pay significant dividends that are not required to be reinvested in Canada, yet under Ottawa’s proposed change, these dividends will be taxed at a lower rate than capital gains.

By contrast, the U.S. stock market thrives on technology and health care companies that are driving unprecedented innovation, job creation and economic growth. An impressive 30 per cent of the S&P 500 Index is comprised of technology companies, and most of them were founded after 1970.

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

Against this backdrop, it is no surprise that our country’s most influential pension funds have had to diversify their investments outside Canada in pursuit of long-term growth and capital preservation, further limiting access to capital for Canada’s entrepreneurial, growth companies.

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

A strong and competitive economy requires greater support for innovation and tax policies that help generate and retain wealth inside our borders.

Rather than penalize and discourage them in their infancy, our government should be creating greater incentives and fewer tax burdens to stimulate investment in modern economy sectors and help growing businesses scale from $10-million to $1-billion and beyond.

Instead of subjecting them to higher taxes, our government should do the opposite and exempt investors in the growth 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 because of our high personal and corporate tax rates, many in search of business opportunities that are simply not supported at home. The job creation and other long-term economic benefits for our country leave with them.

Put simply, implementing an increased capital-gains tax hurts growing businesses. In doing so, our current federal government is telling these companies to look elsewhere.