hike taxes on the country’s largest banks and insurers, with the aim of helping buyers in one of the world’s hottest housing markets. Accordingly, the PM Trudeau has proposed the increase of the corporate tax rate on big banks and insurance companies in Canada by three percentage points from the current rate of 15 per cent, on all earning exceeding $1 billion.
“We have to rebuild a better Canada — one that works for everyone. That’s why we’re going to ask our largest financial institutions, who have recovered faster and stronger than many other industries, to pay a little more so we can invest in Canadians and help them find a home of their own,” his statement read.
However, experts are of the view that the move could backfire, making home purchases less affordable in the North American nation. Analysts note that the typical response of the banks to the proposed tax hike would be to pass down the cost to borrowers in the form of interest rates and service fees. They also point out that any such increase in interest or fees would likely fall harder on individual borrowers in comparison to business clients owing to two main reasons; lenders will be more cautious about upsetting more profitable customers, while on other hand, individual borrowers have fewer alternatives in comparison to corporate clients.
“The banks’ job is to make money and raise money for shareholders,” Bloomberg Intelligence analyst Andrew Silverman said during an interview. “So why would they accept a bank tax if they didn’t have to and they could just pass it through?” He further noted that the proposed increase in tax could prompt banks to buy tax-advantaged government bonds or take on more debt to cushion the impact, instead of raising capital by selling more equity.
