Trudeau targets banks, promises surtax on profits

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The Liberal Party is pledging to intervene in the banking sector on behalf of consumers through a series of campaign platform proposals that would target banks’ profits and fees, and aim to improve supports for clients.

The Liberals released a costed campaign platform Wednesday that adds detail to the party’s recent promise to impose a 3-per-cent surtax on banks’ profits in excess of $1-billion. The party projects the measure would raise $5.3-billion over four years, an estimate that was reviewed by the Parliamentary Budget Officer.

A separate temporary surcharge on banks, called the Canada Recovery Dividend, would raise a further $1.3-billion in each of its first two years, and $1.5-billion by its fourth and final year, adding another $5.5-billion to government coffers by 2025-26.

In addition to singling out banks for special taxes and charges, the Liberal platform promises protections “to level the playing field between you and your financial institution.” It says a Liberal government would give an existing watchdog, the Financial Consumer Agency of Canada (FCAC), new powers to reduce “excessive” fees. The party also promises to compel banks to give customers in financial distress more lenient options, and to create a central ombudsperson to handle consumer complaints.

The proposals add to a cross-party array of consumer-friendly promises targeting banks and large corporations, in an election campaign that has been especially hostile toward large businesses. The NDP has repeatedly said it would raise taxes on large companies and the richest Canadians. And the Conservatives’ platform says the party would “stand up to Corporate Canada.”

Banks have emphasized the role they played in helping the federal government deliver stimulus and relief funds to consumers and businesses, which shielded Canada’s economy from further damage during the early stages of the pandemic. Financial institutions have also deferred payments on about 800,000 mortgages and 1.2 million customer accounts since the virus began to spread in Canada, according to the Canadian Bankers Association (CBA).

But Liberal Leader Justin Trudeau said last week that financial institutions “did very well during this pandemic” and he wants them to “do a little bit more” to help the recovery from COVID-19. The Liberals estimate that their proposed surtax for banks would generate between $1.2-billion and $1.3-billion in annual revenue.

On average, that could reduce major banks’ earnings per share by 2 per cent, with Royal Bank of Canada facing the largest hit at 2.7 per cent, according to National Bank Financial Inc. analyst Gabriel Dechaine.

That assumes banks can keep their rebounding profits at or above prepandemic levels. The country’s six largest lenders earned a combined $15.2-billion in net income in the fiscal quarter that ended July 31, compared with $12.2-billion in the first fiscal quarter of 2020. But recent earnings were favourably skewed by huge recoveries of funds that had previously been set aside to cover potential pandemic-related losses on loans.

The Canada Recovery Dividend appears to be aimed at tapping into the significant stores of capital sitting on banks’ balance sheets. Major banks have an estimated $36.2-billion in extra capital above regulatory minimums, according to Scotia Capital Inc. analyst Meny Grauman, in part because banking regulators have imposed a temporary ban on dividend hikes and share buybacks.

Banks are expected to return some of that capital to investors when the moratorium is lifted. And last week, CBA spokesperson Aaron Boles said the Liberals’ proposals “would merely redirect to government coffers the financial support that Canadians rely on directly from banks,” because many Canadians are bank shareholders, often though pension funds or mutual funds.

The Liberal promise to take aim at banking fees – a key source of banks’ profits – by giving the FCAC new powers to review “excessive” fees and impose changes would add to a mandate for the agency that has already expanded in recent years. The pledge echoes a Conservative campaign promise to order the Competition Bureau to investigate bank fees.

The single independent ombudsperson the Liberals are proposing to establish would have the power to impose binding arbitration. The office would be intended to improve the existing fragmented system for resolving consumer complaints.

The party’s pledge to compel financial institutions to give customers flexible repayment terms on loans – including six-month mortgage payment deferrals – after job losses or major life events, was initially announced last week. Banks already have extensive relief programs to give customers in financial hardship breathing room to recover.

If elected, the Liberals also plan to spend $200-million over four years to create the Canada Financial Crimes Agency, drawing together existing expertise from the RCMP, the Financial Transactions and Reports Analysis Centre (FINTRAC), and the Canada Revenue Agency. The new agency would fight crimes such as money laundering, fraud, organized crime and insider trading.

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