Finance Minister Chrystia Freeland said the higher taxes on capital gains announced in this year’s federal budget are the cost of maintaining a stable democracy, and insisted she wouldn’t have proposed the changes if she believed they would impede investment.

“We looked at a lot of economic research,” Freeland said in an interview with The Logic Wednesday, one day after she tabled the Liberal government’s latest budget. “There’s a lot of serious economic research done in Canada and internationally that suggests that tax on capital gains does not hurt economic growth, does not affect entrepreneurship. And if you do it right, you can actually have a positive impact on economic growth.”

Shopify chief executive Tobi Lütke, Cohere chief executive Aidan Gomez and former Liberal finance minister Bill Morneau were among those who voiced criticism of the proposed tax increase, which comes amid a national debate over moribund productivity growth. Those three, and many other business leaders—from the tech sector, particularly—argue higher capital gains taxes would only make the situation worse. 

Freeland said her analysis suggests the productivity problem is more complicated than that. Certainty and stability also matter for investors and entrepreneurs, and Canada’s ability to offer that is slipping because younger generations have been priced out of the housing market, she said. 

The government decided to spend billions of dollars on increasing housing supply, and the only way to do so while adhering to her fiscal targets was to raise revenue. Freeland said one option was to “pile on the deficit spending,” but she resisted that temptation. “Canada’s fiscal position is very strong, as you know, and markets would have been open to us had we chosen a less fiscally responsible course,” she said.

Freeland’s suggestion that the government was fiscally responsible is also contentious, as some of the calculations she used to keep the deficit at around one per cent of gross domestic product is based on an optimistic forecast for interest rates. Nevertheless, Canada’s fiscal position is sturdier than most other rich countries, which should be an advantage as international investors survey the world for places to deploy capital. 

Freeland said she was careful to keep Canada’s tax rates on capital gains competitive with jurisdictions that might be vying for the same kinds of investors and entrepreneurs, including California, New York and Denmark. 

“I want, obviously, to keep Canada’s best and brightest,” Freeland said when asked directly about the negative reaction to her tax measures. “I truly, truly believe, having lived in Moscow, having lived in New York, that if we want our democracy to work, democracy has to deliver on that essential social contract. And the social contract is, it delivers a good life for the middle class.”