JENNIFER GAUTHIER / Reuters
Liberal leader Justin Trudeau targets Bay Street as a new source of income and pledges to raise the corporate tax rate on all bank and insurance company revenues exceeding $ 1 billion.
These financial institutions would also be required to pay a special fee known as the “Canada Restoration Dividend” over a four year period beginning in fiscal year 2022-23.
The two measures would generate at least $ 2.5 billion in federal revenue over those four years, according to the party.
The move would bring back some of the gains Canada’s financial sector made during the pandemic, in part due to help from the Bank of Canada, government support for wages, businesses and income losses, and skyrocketing asset prices.
The banks were largely able to avoid losses from loan defaults, with customer default rates remaining at an unusually low level. The operating income of Canada’s six largest banks, which are reporting profits this week, has increased more than 17 percent since the COVID-19 pandemic began.
“Our financial institutions and our largest banks have done very well during this pandemic,” Trudeau said on Wednesday during an election freeze in Surrey, BC. “We’re going to ask them to do a little more. Our banks will continue to be strong and profitable, but we will ensure that they also do their part to help us support Canadians who have sacrificed so much during this pandemic. “
General Election Poll: Follow the latest numbers from Nanos-Globe-CTV before the September 20th vote
Canadian Federal Election 2021: Latest updates and important reading ahead of the September 20th vote
Large banks were taken by surprise by the proposal, and some had received no news in the hours leading up to the announcement that the Liberals were planning to do so, according to three sources familiar with the banks’ internal reaction.
The Globe and Mail does not identify the sources as they are not authorized to discuss the matter.
The proposal reflects the NDP, which is competing with the Liberals to support the swing voters in the September 20th elections. It’s the latest volley in a campaign that has taken on an unmistakably anti-big business tone, with even the Conservative platform promising to face “Corporate Canada”.
According to the Canadian Bankers Association, Canada’s six major banks paid $ 12.7 billion in taxes to all levels of government in 2019.
The CBA, which represents the industry, resisted the plan.
“The new taxes proposed by the Liberal Campaign would only pass the financial support that Canadians rely on directly from the banks on to the treasury,” the CBA said in a statement by spokesman Aaron Boles, adding that most Canadians Bank shareholders either directly or directly are through pension funds or mutual funds.
“Eliminating certain sectors of the economy for special taxation is a proven detriment to economic growth and has been abandoned as a strategy by previous governments trying to pursue similar counterproductive policies,” the statement said.
The banks worked closely with the federal government at the start of the pandemic, allowing nearly 800,000 Canadians to defer mortgage payments and acting as a conduit for government aid programs, the CBA said.
Stephen Frank, President and Chief Executive Officer of the Canadian Life and Health Insurance Association, said in a statement: “If a future government were to introduce new tax measures, we expect the government to consult extensively with all stakeholders.”
The federal corporate income tax rate is 15 percent. The proposed change would put a new rate of 18 percent on all bank and insurance company revenues in excess of $ 1 billion. The federal corporate tax rate was as high as 28 percent in 2000, but liberal and conservative governments have gradually reduced it. Since 2012 it has been 15 percent.
Paul Chiasson / The Canadian Press
The NDP’s platform reiterates previous commitments to raise the corporate tax rate from 15 percent to 18 percent, a broad-based hike.
NDP leader Jagmeet Singh’s campaign has focused heavily on calls to raise taxes for large corporations and the “ultra-rich”. The NDP has also proposed a temporary 15 percent COVID-19 surplus tax “on unexpected profits of large companies during the pandemic”.
Mr Singh said Liberals had been quick to give massive support to large corporations at the start of COVID-19 and expressed skepticism following Mr Trudeau’s announcement.
“He defended the interests of the super-rich,” he said in Windsor, Ontario. “So I don’t know how much Canadians can believe he’s actually pulling this off, but we firmly believe we need to consider increasing corporate tax rates, especially for the richest companies. It’s also part of our plan. “
The conservative platform released last week has not proposed any changes to the corporate tax rate. It contradicts the recent decision by the Liberal government to support the Group of Seven’s efforts to establish a minimum global corporate tax rate.
“Only Canadians and Canadians determine the national tax policy and the tax rates of our country,” it says on the conservative platform.
The Liberals also announced in a press release on Wednesday that banks and insurance companies with profits in excess of $ 1 billion would be charged a “Canada Restoration Dividend” on top of the higher corporate tax rate.
The party said details would be worked out in consultation with the Office Superintendent of Financial Institutions in the coming months. The party said rules would be put in place to restrict companies’ ability to use tax planning and profit shifting to avoid the higher taxes. The Financial Consumer Agency of Canada would also be given new powers to handle customer complaints about excessive fees.
Rob Jeffery, director of national taxation for Deloitte Canada, said the financial services sector is already subject to a more complex tax regime than most other industries.
“While the proposals refer to this as a Canadian recovery ‘dividend’, the measure really appears to be a special, temporary tax for a group of taxpayers within the financial sector,” he said.
“When I think of tax measures in general, [they] often start out as temporary and sometimes become permanent, ”he added.
CARLOS OSORIO / Reuters
According to S&P Global Market Intelligence, the operating income of the six largest banks has increased 17.4 percent in the last 12 months compared to the previous year. The Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada together generated nearly $ 67 billion in pre-tax operating income.
Spokespersons for the five largest banks declined to comment, referred questions to the CBA, or did not respond immediately.
National Bank of Canada CEO Louis Vachon was interviewed on Wednesday afternoon during a conference call with analysts about the Liberals’ proposal.
“I have enough scars on my face not to comment on proposals during an election,” he said. “So I’ll take the fifth [Amendment] in this case, although we are in Canada. “
With reports from David Milstead and Clare O’Hara
Follow the party leaders and their position on the issues of this campaign by signing up for our morning or evening update newsletter.
Subscriber Only: Get exclusive political news and analysis by signing up for the Politics Briefing.