The feds want Big Finance to pay up

From a green energy push to expanded dental care, the feds put forward ambitious but pricy goals in this year’s budget. They also made it clear who would help pay for it all.

What happened: The government has turned to the financial sector to drum up some cash, rolling out tax changes that target banks and insurers. A move to count some dividends (from shares that banks hold) as income is projected to raise $3.15 billion over five years. 

  • Last year’s budget also introduced a one-time tax on 2021 taxable income over $1 billion and a permanent (and substantial) hike on taxable income over $100 million. 

Plus: A new tax on share buybacks also kicks in next year and is set to rake in $2.5 billion over five years. But that’s more about forcing companies to reinvest in their businesses, especially since buybacks haven’t been that popular amongst Canadian banks lately.

  • Buying back shares can typically boost share value by taking some off the marketplace, but the practice is criticized as a move that puts investors first. 

Bottom line: Some analysts are concerned that the feds are becoming over-reliant on taxing the financial sector to pay for things. While fiscal impacts on banks and insurers from these new measures are minimal, it sets the stage for bigger future moves.—QH