Two new taxes on Canadian banks and insurers could generate $5.3 billion over five years, the Parliamentary Budget Officer said Thursday.
The tax changes, which Prime Minister Justin Trudeau proposed during last year’s Canadian election campaign, would bring in less revenue than the $6.1 billion initially estimated in April’s budget.
The PBO calculates that $3 billion will come from the one-time Canada Recovery Dividend, a 15 per cent surtax on domestically-generated profits over $1 billion in the past two years. This is to be paid in equal instalments by banking and life insurance groups over five years.
The dividend was introduced to make big banks and insurers pay extra to help cover the cost of fighting the pandemic.
Finance Minister Chrystia Freeland is also proposing an additional increase of 1.5 percentage point to the corporate tax rate paid by banks and insurers on income over $100 million. This permanent tax will generate another $2.3 billion, the PBO said.
Freeland had justified the tax hikes by noting that government intervention during the pandemic insulated banks’ balance sheets from the economic fallout of the COVID recession. The federal government provided $350 billion in total for health and safety and direct support measures.
“Canada’s major financial institutions made significant profits during the pandemic and have recovered faster than other parts of our economy — in part due to the federal pandemic supports for people and businesses that helped de-risk the balance sheets of some of Canada’s largest financial institutions, ” the budget document stated.
Banks pushed back on the levy after Trudeau first announced it on the campaign trail last year.
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The Canadian Bankers Association (CBA) had criticized the plan at the time, accusing the government of “singling out” the financial services industry and saying the tax hit will “merely re-direct” bank profits from Canadians — in the form of lost stock dividends — to government coffers.
The group said Canadian banks provided Canadians with mortgage relief, waived millions in fees for individuals and small businesses and were instrumental in essential programs such as the Canada Emergency Relief Benefit and the Canada Emergency Business Account during the pandemic.
“While we remain opposed to singling out specific economic sectors for special taxation, the CBA and its members are nonetheless committed to accelerating a thriving Canadian economy and helping our country emerge from volatile economic times with a strong, sustainable recovery,” it said in a statement.
Additional reporting by Barbara Shecter, Financial Post