Following Justin Trudeau’s Liberal Party win, big banks should expect changes that will see them pay more taxes. Having won just enough seats to form a minority government, the Liberals are expected to deliver on election promises that included a 3% surtax on profits exceeding $1 billion made by banks and insurers. This was in keeping with most parties promises to increase taxes on wealthy individuals and corporations. A platform that was found to be popular with voters.
Banks have come under the spotlight over the last year following larger profits reported. This has however been attributed to lower loan loss provisions that were built up during the early months of the pandemic and were later found not to be as necessary. Some investors had hoped to benefit from this outcome with higher dividend payouts while some banks had been considered new acquisitions.
The party further proposed to have financial institutions contribute to a Canada Dividend Fund. This and the tax measure have been estimated to raise over $10 billion during the next four years. Pundits expect the government to move forward quickly on this tax proposal as its revenue was to help in funding housing affordability. Such a move is also expected to curry favour with voters by showing the government is serious about meeting election promises.
Banks already pay a corporate tax rate of 15%. This additional tax would see them lose an additional 2% of their profits, the impact of which varies from bank to bank. Banks have been critical of this move, stating that it would negatively impact their shareholders, some of whom were invested through pension and mutual funds.
Business groups have also opposed the introduction of new taxes on the sector, stating that the government should rather focus on economic recovery. The Canadian Chamber of Commerce CEO, Perrin Beatty, has said that new taxes and regulations were the worst way to encourage new investment in the country. He noted that the government often treated the business sector as an opponent or obstacle to overcome and that this bashing was bad economics.
The Liberals will be forced to pass new legislation with the support of the New Democratic Party (NDP) that is leading in 27 electoral districts. Liberals secured just 158 seats. NDP support is expected to give the government the 170 seats it needs to pass laws. In addition to the new tax on banks and insurers, the NDP also announced proposals to raise the marginal tax rate on the wealthy by 2 percentage points. They further promised to hike the capital gains inclusion rate and introduce a 1% wealth tax on those with an estimated wealth of over $10 million. The NDP is expected to demand concessions on these priority issues in exchange for supporting the Liberals in the House of Commons.
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