Canada NewsNews

Financial sector braces for bank tax following Liberal minority win

Liberals’ proposed tax could cost the banks around two per cent of their profits

Article content

Monday’s federal election, which produced another Liberal minority government, has many expecting the status quo to prevail over the coming weeks and months, but for the financial services industry, a big change could be on the way.

Advertisement

Story continues below

Article content

During the election campaign, Justin Trudeau pledged to enact a three per cent surtax on banks and insurance companies on every dollar they earn over $1 billion, prompting complaints that the sector was being singled out and penalized for its strong performance during the COVID-19 pandemic.

With the NDP again holding the balance of power in Parliament, industry watchers said Tuesday they wouldn’t be surprised to see the tax proposal — the proceeds of which were earmarked to improve housing affordability — move forward quickly.

“It is consistent with the Liberals announced policy and plays well with the NDP desire to tax substantial sources of wealth,” said Jon Levin, a veteran Bay Street lawyer at Fasken Martineau DuMoulin LLP.

Advertisement

Story continues below

Article content

“My guess is, especially in the context of a minority government, that they will quickly move ahead with the tax without any consultation,” Levin said. “I expect them to do this in order to show that they are meeting their election promises.”

It is consistent with the Liberals announced policy and plays well with the NDP desire to tax substantial sources of wealth

Jon Levin

In the run-up to the election, the NDP pledged to target the wealthy and large corporations, with plans to raise the top federal marginal tax rate by two percentage points, hike the capital gains inclusion rate would increase to 75 per cent, and add a one per cent wealth tax for the “super-rich” with over $10 million in wealth.

Analysts have suggested the Liberals’ proposed tax on financial services companies, on top of the 15 per cent corporate rate, could cost the banks around two per cent of their profits, though the impact varies from institution to institution. Insurance companies are less likely to feel the impact.

Advertisement

Story continues below

Article content

The Canadian Bankers Association said the reduced income would penalize the majority of Canadians who are bank shareholders and receive dividends, either through share ownership or through pension and mutual funds.

The tax hit would “merely re-direct” bank profits from Canadians to government coffers, the CBA said in an Aug. 25 statement following the Trudeau’s campaign tax pledge.

One bank analyst, who spoke on condition that he not be named because he is not authorized to speak for his financial institution, said he doesn’t expect the Liberals’ campaign promise to be affected by the party’s failure Monday to secure at least 170 seats in the House of Commons.

“I don’t think it was contingent on a majority government,” he said.

Advertisement

Story continues below

Article content

Business groups have been vocal about their opposition to new taxes on companies to fund government spending and reduce pandemic-related debt, and reiterated Tuesday that the focus of the newly formed government should be on economic recovery.

“The worst way to encourage new investment in Canada would be to bring in new taxes or regulations that say to businesses that our goal is to punish success,” said Perrin Beatty, chief executive of the Canadian Chamber of Commerce.

“While other countries are anxious to partner with their business communities, too often Ottawa treats business as an opponent or as an obstacle to be overcome. Business-bashing may be good politics, but it’s bad economics and comes at a very high cost.”

Advertisement

Story continues below

Article content

A new tax on banks and insurance companies could also prove unpopular with some parties in Ottawa, but Levin, the Faskens lawyer, said the move would be unlikely to cost the Liberals key support among voters.

“I suspect Bay Street already votes Conservative, and running against the banks is likely good politically for the Liberals and helps them with the NDP,” he said.

  1. TD, CIBC and BMO banks in Toronto's financial district on June 24, 2020.

    Banking industry may be clearest loser from Trudeau’s re-election

  2. Liberal Prime Minister Justin Trudeau won another minority government Monday.

    What the election outcome means to the economy, stocks and the loonie

  3. TD, CIBC and BMO bank buildings in the financial district in Toronto, June 24, 2020.

    Big Six flush with capital, look to U.S., fintech sectors for potential acquisitions

Rocco Rossi, chief executive of the Ontario Chamber of Commerce, said Tuesday that his organization is calling on the new government to look beyond new taxes on businesses.

Advertisement

Story continues below

Article content

“The alternative to new taxes is growth,” he said. “Tax reforms should focus on incentivizing increased business investments and streamlining the tax system.”

Goldy Hyder, chief executive of the Business Council of Canada, echoed those remarks.

“As Canada deals with the COVID-19 pandemic and its aftermath, we should be focused on economic recovery, not raising or lowering taxes,” he said.

Hyder added that since “no party can claim to have won a convincing mandate” in Monday’s election, the parties should set aside partisan interests in favour of working together on an economic growth plan.

• Email: [email protected] | Twitter:

Advertisement

Story continues below

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

View Article Origin Here

Related Articles

Back to top button