Liberal Leader Justin Trudeau is targeting Bay Street as a source of new revenue, pledging to raise the corporate tax rate on all bank and insurance company income in excess of $ 1 billion.
These financial institutions would also be required to pay special fees known as “salvage dividends from Canada,” over a four-year period beginning in fiscal year 2022-2023.
The two measures would bring in at least $ 2.5 billion in federal revenue per year over those four years, according to the party.
The measure would recoup some of the gains that Canada’s financial sector made during the pandemic in part thanks to assistance from the Bank of Canada, government support for wages, businesses and lost income, and the soaring asset prices.
Banks have been largely successful in avoiding losses on defaults, with customer default rates at unusually low levels. The operating profit of Canada’s six largest banks, which report profit this week, has increased by more than 17% since the start of the COVID-19 pandemic.
“Our financial institutions and our biggest banks have performed very well during this pandemic,” Trudeau said during a campaign stop in Surrey, British Columbia, on Wednesday. “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 so that we can support the Canadians who have sacrificed so much during this pandemic. “
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The big banks were blinded by the proposal, and some still had not been notified that the Liberals were preparing it in the hours leading up to the announcement, according to three sources with knowledge of the banks’ internal response.
The Globe and Mail does not identify the sources as they are not authorized to discuss the matter.
The proposal echoes the NDP, which is competing with the Liberals for swing voter support in the September 20 election. It is the latest salvo in a campaign that takes on a quintessentially anti-big business tone, with even the Conservative platform promising to “stand up to Canadian business”.
The Big Six banks paid $ 12.7 billion in taxes in Canada to all levels of government in 2019, according to the Canadian Bankers Association.
ABC, which represents the industry, opposed the plan.
“The new taxes proposed by the Liberal campaign would only redirect the financial support that Canadians rely on directly from banks to government coffers,” the CBA said in a statement sent by spokesperson Aaron Boles, adding that most Canadians are shareholders of banks, directly or through pension funds or mutual funds.
“The identification of specific economic sectors for special taxation is a proven detriment to economic growth and has been abandoned as a strategy by previous governments which have attempted to pursue equally counterproductive policies,” the statement said.
Banks worked closely with the federal government early in the pandemic, allowing nearly 800,000 Canadians to defer mortgage payments and acting as an intermediary for government assistance programs, the CBA said.
Stephen Frank, president and CEO of the Canadian Association of Life and Health Insurance Companies, said in a statement that “should a future government introduce new tax measures, we expect the government to consult widely with all stakeholders ”.
The federal corporate tax rate is 15 percent. The proposed change would set a new rate of 18% on all income of banks and insurance companies over $ 1 billion. The federal corporate tax rate was 28% in 2000, but Liberal and Conservative governments have gradually reduced it. It has remained at 15% since 2012.
The NDP platform reiterates past promises to raise the corporate tax rate to 18 percent from 15 percent, a widespread hike.
NDP Leader Jagmeet Singh’s campaign has focused heavily on calls to raise taxes for big business and the “ultrarich.” The NDP also proposed a temporary COVID-19 excess profits tax of 15% “on windfall profits of large companies during the pandemic.”
Mr Singh said the Liberals quickly provided massive support to big business in the early days of COVID-19 and expressed skepticism after Mr Trudeau’s announcement.
“He stands up for the interests of the super-rich,” he said in Windsor, Ont. “So I don’t know how much Canadians can believe he will follow through on this, but we are absolutely convinced that we need to consider raising corporate tax rates, especially for the wealthier corporations.” . It is also part of our plan.
The conservative platform released last week did not propose changes to the corporate tax rate. He challenges the recent Liberal government decision to support the Group of Seven’s efforts towards a global minimum corporate tax rate.
“Canadians and Canadians alone determine our country’s national policy and tax rates,” says the Conservative Platform.
The Liberals also announced in a press release on Wednesday that in addition to the higher corporate tax rate, banks and insurance companies making profits of more than $ 1 billion would be charged a “dividend. recovery of Canada ”.
The party said details would be worked out over the next few months in consultation with the superintendent of the office of financial institutions. The party said rules would be adopted to limit the ability of businesses to use tax planning and profit shifting to avoid higher taxes. New powers would also be granted to the Financial Consumer Agency of Canada to deal with customer complaints about excessive fees.
Rob Jeffery, head of national tax policy at Deloitte Canada, said the financial services industry is already subject to a more complex tax regime than most other industries.
“Although the proposals call it a claw-back ‘dividend’ in Canada, the measure really does appear to be a special, temporary tax imposed on a group of taxpayers within the financial sector,” he said.
“When I think of tax measures in general, [they] often start as temporary and sometimes become permanent, ”he added.
According to S&P Global Market Intelligence, the operating revenues of the six largest banks increased 47.8% in the past 12 months compared to the previous year. Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada combined for pre-tax operating income of 74. $ 2 billion.
Spokesmen for the five largest banks declined to comment, referring questions to the ABC, or did not immediately respond.
National Bank of Canada CEO Louis Vachon was asked about the liberal proposal Wednesday afternoon during a conference call with analysts.
“I have enough scars on my face not to comment on the proposals in an election,” he said. “So I’ll take the fifth [Amendment] on that one, even though we’re in Canada.
With reports from David Milstead and Clare O’Hara
An earlier version of this story also indicated that the two measures would bring in at least $ 2.5 billion in federal revenue over four years. In fact, the party plans to raise $ 2.5 billion a year over four years.
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