Financial sector braces for bank tax after liberal minority victory

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Liberal proposed tax could cost banks around 2% of their profits

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

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

With the NDP once again in the balance of power in parliament, industry watchers said on Tuesday they would not be surprised to see the tax proposal – the proceeds of which were intended to improve housing affordability – move forward quickly.

“This is in line with the policy announced by the Liberals and fits well with the NDP’s desire to tax substantial sources of wealth,” said Jon Levin, a senior Bay Street lawyer at Fasken Martineau DuMoulin LLP.

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

It is in line with the policy announced by the Liberals and fits well with the NDP’s desire to tax major sources of wealth.

Jon levin

As the election approaches, the NDP pledged to target the rich and big business, with the intention of increasing the top federal marginal tax rate by two percentage points, raising the rate d inclusion of capital gains at 75% and adding a wealth tax of 1% for the “super-rich” with more than $ 10 million in wealth.

Analysts have suggested that the Liberals’ proposed tax on financial services companies, in addition to the 15 percent corporate tax rate, could cost banks around 2 percent of their profits, although the impact varies. from one institution to another. Insurance companies are less likely to feel the impact.

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

The tax coup would only “redirect” Canadians’ bank profits to government coffers, the CBA said in an Aug. 25 statement in the wake of Trudeau’s campaign tax pledge.

A banking analyst, who spoke on condition of not being named because he is not authorized to speak on behalf of his financial institution, said he did not expect the Liberals’ campaign promise be affected by the party’s failure on Monday to win at least 170 seats. in the House of Commons.

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

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Business groups expressed opposition to new corporate taxes to fund government spending and reduce debt linked to the pandemic, and reiterated on Tuesday that the new government should focus on economic recovery.

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

“While other countries are eager to partner with their business communities, Ottawa too often treats business as an adversary or a barrier to be overcome. Business-bashing might be a good policy, but it’s a bad economy and it costs a lot.

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

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

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

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“The alternative to the new taxes is growth,” he said. “Tax reforms should aim to encourage companies to invest more and to streamline the tax system. “

Goldy Hyder, CEO of the Business Council of Canada, echoed the comments.

“As Canada grapples with the COVID-19 pandemic and its aftermath, we should be focusing 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, parties should put aside partisan interests in favor of working together on a plan for economic growth.

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