New taxes on banks, insurers may yield $5.3B, PBO says

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 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 COVID.

Finance Minister Chrystia Freeland is also proposing an extra 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 yield 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 feds 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,” the budget document stated.

Banks pushed back on the levy after Trudeau first announced it on the campaign trail last year.

The Canadian Bankers Association criticized the plan at the time, accusing the government of “singling out” the financial services industry and saying the tax hit will “merely redirect” 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 during the pandemic.

Canadians have until Sept. 30 to comment on the draft legislation.