Canada defends capital gains tax hike, says it will keep borrowing low

OTTAWA (Reuters) - A planned hike in the capital gains tax for the wealthiest will help keep Canada's borrowing low and fund social programmes, Finance Minister Chrystia Freeland said on Monday.

"We know now is the time to invest in Canada and Canadians," Freeland told a press conference. "The responsible way to pay for those investments is to ask those at the top to contribute a little bit of money."

Freeland in April revealed a new tax on the wealthy to bring in C$20 billion ($14.54 billion) over five years to help fund an ambitious housing program that aims to resolve a crisis that has shrunk Prime Minister Justin Trudeau's approval ratings.

The additional dollars are also slated to help fund other expensive social programmes on healthcare, dental care and drugs.

"Canada could finance these critical investments by taking on more debt that would place an unfair burden on younger generations," Freeland said.

Canada is increasing its annual spending by over a quarter to C$608.7 billion until 2028-29, according to the budget document, which includes over C$57 billion of new spending that has been heavily criticized by economists due to the government's rising debt levels and debt servicing costs.

The plan to tax people with capital gains of more than C$250,000 at a rate of 66.7% on the excess amount - up from 50% previously - has been criticized by economists and businesses who say it will drive investors to the neighboring U.S.

It is likely to be implemented by June 25 and will be tabled in parliament on Monday.

($1 = 1.3759 Canadian dollars)

(Reporting by Promit Mukherjee and David Ljunggren; editing by Deepa Babington)