Trudeau, Canadian Prime Minister: "If Re-elected, Corporate Tax Increase for Major Financial Firms"

Justin Trudeau, Prime Minister of Canada [Photo by Reuters]

[Asia Economy Reporter Park Byung-hee] Canadian Prime Minister Justin Trudeau has proposed raising the corporate tax rate on large financial institutions as an election pledge.

According to Bloomberg on the 25th (local time), Prime Minister Trudeau announced during a campaign event in Vancouver that he would impose an additional 3% corporate tax on the net profits exceeding 1 billion Canadian dollars (approximately 927.7 billion KRW) of large banks and insurance companies.

If Trudeau's pledge is implemented, the corporate tax rate for large financial institutions will increase from 15% to 18%. Trudeau said, "Banks have continued to make very large profits and have been successful." He added, "Even during the COVID-19 pandemic, when everyone else tightened their belts, banks continued to generate huge profits. We will ask more from the banks."

The combined net profit of Canada's six major banks for the 2020-2021 fiscal year (April 2020 to March 2021) exceeded 40 billion Canadian dollars.

This year is also on track. So far, four of the six major banks have announced their Q3 (April to June) results, all posting net profits exceeding market expectations. The banks mainly earned large profits from mortgage loans, thanks to the sharp rise in Canadian housing prices.

Earlier, Trudeau said he would prepare legislation to restrict foreign home purchases for two years to curb rising housing prices. The increase in corporate tax rates for the financial sector reflects an intention to recoup part of the banks' profits resulting from rising housing prices.

The financial sector immediately responded sharply, saying that raising corporate taxes is unproductive and could harm the economy.

The Canadian Bankers Association (CBA) criticized, "It has already been proven that taxing only specific industries harms economic growth, and raising corporate taxes is a strategy abandoned by previous governments," adding, "Banks already pay the most taxes in Canada." The CBA also pointed out that most Canadians are bank shareholders either directly or indirectly through pensions or mutual funds, stating, "Prime Minister Trudeau's corporate tax hike on the financial sector will reduce the income of the majority of Canadians."

The Canadian Life and Health Insurance Association also stated that regardless of which party wins the election, any new tax proposals should be discussed with the industry by the next government.

Paul Gulberg, an analyst at Bloomberg Intelligence, said, "Prime Minister Trudeau's corporate tax hike would reduce banks' earnings per share by about 2-3%," adding, "It could also affect the previously very good relationship between banks and the government." Gulberg added, "There is clearly nothing good for investors either."

Canada Party Support Rate Trends [Image source= Bloomberg]

Trudeau, a member of the Liberal Party, came to power in 2015. In that election, the Liberal Party won a majority with 184 seats but failed to secure a majority in the 2019 election. Trudeau argues that large-scale fiscal spending is necessary for economic recovery after COVID-19. The reason Trudeau proposed raising corporate taxes on the financial sector is to secure fiscal revenue. He emphasized that the 3 percentage point increase in corporate tax on the financial sector could generate an additional 2.5 billion Canadian dollars in tax revenue for the Canadian government over the next four years starting next year.

Trudeau's government's fiscal spending policies have repeatedly been hindered by opposition parties. With about two years left until the next general election, Trudeau has called an early election aiming to secure a majority. Canada is scheduled to hold the general election on the 20th of next month.

However, in the first week of the election campaign, the Liberal Party's support rate declined while the Conservative Party and the New Democratic Party's support rates rose, putting Trudeau in a difficult position.

According to a poll released by the Canadian Broadcasting Corporation (CBC) on the 22nd, party support rates were 34.0% for the Liberal Party, 30.3% for the Conservative Party, and 19.8% for the New Democratic Party. Polling firm 338Canada reported that the Liberal Party's chance of securing a majority, which was over 50% at the start of the campaign, dropped to 22%.

Before dissolution, the distribution of seats in the Canadian House of Commons was 155 seats for the Liberal Party, 131 seats for the Conservative Party, 32 seats for the Quebec Bloc, which advocates for Quebec independence, and 24 seats for the left-leaning New Democratic Party, out of a total of 338 seats.

This content was produced with the assistance of AI translation services.