OTTAWA – Thursday’s federal budget will include an additional tax on financial institutions that have made big profits during the pandemic, CTV News has learned.
By asking them to share their wealth, the big chartered banks and major insurance companies are preparing for the new targeted measure that is expected to increase their corporate income taxes. How much more they will have to pay, will be detailed in the budget.
In their 2021 election platform, the Liberals promised to levy a three percent surtax on banks and insurers earning more than $1 billion a year.
Advancing “in the short term on tax changes at financial institutions that have made strong profits during the pandemic,” was consolidated in the Liberal-NDP agreement signed a few weeks ago, derived from the commitments of both parties to go after the speculators of the pandemic.
In the last election, the Liberals pledged to raise income taxes on the “largest and most profitable banks and insurance companies” and introduce a “temporary Canada recovery dividend” that these companies would have to pay.
The Liberals loved that the three percent surcharge would generate approximately $1.2 billion a year, for a total of $3.6 billion over the next three years.
“We have a plan for everyone. And to finance this plan, we will ask the largest banks and insurance companies to do a little more to share the dividend of their pandemic profitability with Canadians,” reads the party platform.
Just before entering their three-year alliance, the NDP was lobbying the House of Commons Let the Liberals act on this compromise in the 2022 budget.
The NDP’s suggestion was that, given the rising cost of living and wealth inequality, the billions of dollars recovered should go directly to measures that help Canadians make ends meet.
“We believe that there is more than enough revenue available from companies that have made significant profits during the pandemic (record profits in many cases) and are not paying their fair share. We think there is more than enough revenue to pay for the initiatives we have put forward and then some,” NDP leader Jagmeet Singh told reporters on Tuesday.
It remains to be seen whether the revenue from the surcharge will be earmarked for a specific funding initiative or added to consolidated revenue for the government to allocate at its discretion.
Since the government has to factor into this budget a number of pressures: the ongoing pandemic economic rebound and inflation; promised funding for Liberal platform housing, climate and health care initiatives; look for elements of the trust and supply agreement with the NDP; and increase Canada’s defense spending: The budget is expected to include billions in new spending.
It remains to be seen how many billions the Liberals are preparing to spend (in the 2021 budget, the government revealed $101.4 billion in new spending).
As of the December 2021 fiscal update, the government projected a deficit of $58.4 billion in 2022-23, which will decrease each year thereafter.
However, that projection was made before the Liberal-NDP agreement was signed, which promised billions for social programs like dental care, and before the renewed focus on Canada fell short of the two’s defense spending commitment. percent of NATO’s GDP in light of continued Russian attacks on Ukraine.
Pursuing revenue-generating initiatives like this additional tax is one way the government could be looking to pay off its long list of spending commitments.
However, Ernst & Young National Tax Policy Leader Fred O’Riordan warned that while going after banks may be politically popular, the cost could be passed on to bank customers in the form of higher fees, unless the government take steps to ban it.
“It’s more or less consistent with the kind of virtue-signaling taxes that the current administration seems to favor,” O’Riordan told CTV News. “It’s a relatively punitive tax from the point of view of taxpayers…but that amount of money pales in comparison to the likely shortfall.”
While preparing for the implementation of the policy, the banks have been lobbying behind the scenes for the government to change course.
In a speech to shareholders at the bank’s annual general meeting on Tuesday, Scotiabank CEO Brian Porter called the “bank tax” a “knee-jerk reaction,” according to his prepared remarks.
“The bank tax is not just a knee jerk reaction that sends the wrong message to the global investment community…it is ultimately a tax on you, our shareholders, approximately 70 percent of whom are Canadian. It is a tax on those who are direct owners of our shares or participate through pension plans or mutual funds, index funds or ETFs [exchange-traded funds],” read a copy of his address.
The liberal platform also promised a host of other tax equity initiatives that could pump more billions into the federal coffers, if pursued in this budget.
As the government looks to raise revenue to help pay for everything it has promised, former parliamentary budget official and current chair of the University of Ottawa’s Institute for Fiscal Studies and Democracy Kevin Page told CTV News they can feel justified in targeting to the banking and insurance sectors as they “basically got through the recession in 2020-21 with no scars.”
“If you’re looking for revenue and you’re looking to do new things to help strengthen the post-COVID economy, it’s certainly a sector that’s stood out, that’s done very well, that could probably withstand a tax increase,” Page said.
Experts CTV News spoke with said this upcoming additional tax may be the start of a new trend, opening up the potential for the federal government to pursue future tax increases in lucrative sectors.
The NDP has said it wants to see profitable oil companies and big box stores also subject to a corporate tax increase, and it is something Singh told reporters on Tuesday that he will continue to push for.
Freeland will present the budget at 4 pm EST Thursday in the House of Commons.
Reference-www.ctvnews.ca