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Canadian banks hit with tax hike in federal budget, worry about competitiveness

TORONTO — The federal budget tabled Thursday includes a smaller-than-expected tax hike for financial institutions, but bank CEOs say a corporate tax rate increase will hurt Canada's competitiveness on the global stage. Thegovernmentannounced a 1.
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Victor Dodig, President and CEO of CIBC, speaks during the annual meeting of shareholders in Ottawa on Thursday, April 6, 2017. Dodig says a tax hike targeting major financial institutions expected in today’s federal budget could send the wrong signal internationally about investing in Canada.THE CANADIAN PRESS/Justin Tang

TORONTO — The federal budget tabled Thursday includes a smaller-than-expected tax hike for financial institutions, but bank CEOs say a corporate tax rate increase will hurt Canada's competitiveness on the global stage.  

Thegovernmentannounced a 1.5 per cent tax hike for banks and insurers on profits over $100 million.Although the tax itself was anticipated, Canadian banks were bracing for a possible three per cent surtax on earnings over $1 billion.

The budget also includes a one-time 15 per cent tax on taxable income over $1 billion for the last tax year that the government is calling a Canada Recovery Dividend.

Combined, these measures are expected to raise $6.1 billion over five years. The 1.5 per cent tax increase is expected to raise $445 million on an ongoing basis.

CIBC CEO Victor Dodig said in an interview that a tax increase on businesses like his sends the wrong signal to the world about investing in Canada. He added that he is an advocate for competitive tax policy, butnot a policy that targets specific industries.

"When one picks on particular industries, sometimes foreign investors can shy away from those markets because they see it as a political type of tax and we need to be mindful of that," he said. "There’s a better way of doing it."

The Liberals hadpromised in their 2021 election platform to hike the corporate tax rate for banks and insurers with profits over $1 billion. 

The party estimated such a measure, aimed at companies that saw record profits during the pandemic, would bring in about $1.2 billion a year.

The NDP had urged the Liberals to move forward with fair taxation measures such as the bank tax not long before they agreed to support the party through to 2025.

Scotiabank CEO Brian Porter, who was absent from his bank's annual shareholder meeting this week due to COVID-19, criticized the proposed tax in his prepared remarks, calling it "a knee-jerk reaction that sends the wrong message to the global investment community."

In a roundtable interview following RBC's annual meeting Thursday, CEO Dave McKay said global investors want stability and predictability.

"When you put that predictability in question, that's when capital flows can change," he said. 

This report by The Canadian Press was first published April 7, 2022.

Companies in this story: (TSX:CM)

Adena Ali, The Canadian Press

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