Canadian banks are flush with cash and can afford to pay billions of dollars more in taxes, says the Superintendent of Financial Institutions.
Blacklock’s Reporter says Peter Routledge told a teleconference of Toronto bankers on Monday that taxes proposed in the Liberal Party’s election campaign platform were worth a fraction of the industry’s net income.
“From our perspective, this issue is rather minor,” said Routledge.
An estimated $2.5 billion in new taxes “is not a significant valuation,” he said.
“In 2020, federally-regulated financial institutions earned approximately $73 billion before tax, which means the temporary recovery measures as laid out in August should add up to less than 3% of net income before tax,” said Routledge.
Prime Minister Justin Trudeau last August 25 said a re-elected Liberal cabinet would increase the corporate tax rate on financial institutions with earnings over $1 billion annually from 15 to 18%. The tax would apply this year, according to a Liberal Party document.
The document also proposed banks pay a so-called Canada Recovery Dividend “in recognition of the fast-paced return to profitability these institutions have experienced in large part due to the unprecedented backstop Canadians provided to our economy through emergency support to people and businesses.”
The dividend was unexplained.
Cabinet in a December 16 Mandate Letter reiterated it would be “introducing legislation to raise the corporate income tax payable by banks and insurance companies that earn more than $1 billion and require them to pay a temporary Canada Recovery Dividend.”
Routledge told an RBC Capital Markets Bank CEOs’ videoconference the surtaxes were not new.
“There is historical precedent,” he said.
“In the 1995 and 1996 federal budgets the government of the day included a temporary capital tax on large deposit-taking institutions as part of a strategy to share the burden of deficit reduction broadly and specifically within the corporate sector,” said Routledge.
Bank tax rates at the time were effectively 36%, he said.
“In 2020 that rate stood at approximately 17%,” added Routledge.
The prime minister last August 25 said the “recovery dividend” would be charged over four years.
“Big banks got a windfall,” said Trudeau.
“As we rebuild we’re going to ask big financial institutions to pay a little back, to pay a little more, so that we can do more for you.
“Everyone else had to tighten their belt. We’re going to ask them to do a little bit more.”