Trudeau accused of ‘singling out’ financial firms after pledge to tax banks, insurers

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Liberal leader Justin Trudeau is pledging to raise corporate taxes on banks and insurance companies earning more than $1 billion per year to fund his new housing policy if his government is re-elected next month.

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The country’s banks responded swiftly, criticizing the “singling out” of the financial services industry and saying the tax hit will “merely re-direct” bank profits from Canadians to government coffers.

“The proposed tax increase would reduce income that would otherwise benefit the majority of Canadians who are bank shareholders, either directly through share ownership or indirectly through pension and mutual funds, including the Canada Pension Plan,” the Canadian Bankers Association said in a statement, adding that pension funds and RRSPs are some of the main beneficiaries of the billions of dollars that the banks pay in dividends each year.

“Seniors, charities and endowments that rely on dividend payments would be punished as a result,” the statement said.

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The CBA said banks are already among the largest taxpayers in Canada, with the six largest banks alone paying $12.7 billion to all levels of government in 2019.

The statement said singling out specific economic sectors for special taxation is detrimental to economic growth and has been abandoned by previous governments as a result.

On Wednesday, Trudeau said he would increase the corporate tax rate on big banks and insurance companies by three percentage points on all earnings over $1 billion. The proceeds would flow into a Canada Recovery Dividend to help fund his party’s housing plan, which includes promises of additional housing supply and reduced costs to assist Canadians in buying homes, as well as restrictions on foreign ownership and measures to curb the practice of speculators buying and quickly selling real estate, known as flipping.

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According to the CBC, Trudeau elaborated on the tax plan during a campaign stop in Surrey, B.C., saying the financial services sector had come through the COVID-19 pandemic stronger than most industries, and was therefore in a position to help offset the cost of the recovery.

His plan to increase corporate taxes for banks and insurance companies came the same day Royal Bank of Canada, the country’s largest bank, reported third-quarter earnings that beat analyst expectations, due primarily to the release of provisions set aside during the pandemic to cover potential loan losses. Royal reported net income of almost $4.3 billion. National Bank of Canada, which also reported financial results Wednesday, beat analyst estimates as well.

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When it comes to housing policy, some critics have accused Canada’s banks of putting their interest in making loans ahead of efforts to tamp down Canada’s hot real estate market, with home prices soaring out of reach for many in cities such as Toronto and Vancouver. Governments and regulators have layered on measures including more strenuous credit stress tests and foreign ownership taxes to try to cool down the real estate market.

In the wake of Trudeau’s latest proposal, Canada’s national life and health insurance association called for broad consultations that include industry.

“If a future government were to introduce new tax measures, we expect that the government would consult broadly with all stakeholders,” said Stephen Frank, chief executive of the Canadian Life and Health Insurance Association.

He added that Canada’s life and health insurance providers already pay more than $8 billion a year in federal and provincial tax revenue, and said the public policy objectives and implications of any tax changes must be made clear.