Flaherty rejects any initiative for global bank tax
OTTAWA - There is no way Canada will co-operate with attempts to impose a global tax on banks, says Finance Minister Jim Flaherty.
In a speech to a Toronto financial audience on Wednesday, he lashed out at the international campaign to impose taxes and levies on banks to create a fund in case of future bailouts.
"We believe that Canadian taxpayers should not bear the costs of bailouts of financial institutions in other countries," Flaherty told the conference, a day before heading to Washington to make the same argument to his international colleagues.
The International Monetary Fund has just endorsed the idea, saying G20 countries should make all financial institutions pay into such funds, and should also considering a new tax on bank profits and pay.
But Flaherty said such taxes create an incentive for banks to behave recklessly, since they know they'll be bailed out if worst comes to worst.
"Let me make that even clearer," he said. "Canada will not go down the path of excessive, arbitrary or punitive regulation of its financial sector."
Flaherty's opposition to the IMF recommendations is notable because Canada is the next host of the G20 summit and has considerable say in the agenda. Proponents of a global bank tax fear Canada will block the initiative.
The IMF has warned that a global bank tax needs to be applied universally by most major countries, so that banks don't start shopping around to take advantage of low-tax jurisdictions.
Flaherty says he will not impede the success of the Canadian banking sector with any new taxes.
"Canada has been widely praised for the health of our financial sector - a system that held its ground under intense pressure," he said. "We are determined to strengthen Canada's rising global position in the future."
Instead of experimenting with poorly designed taxes, the G20 should focus on rules to bolster capital requirements and cap leverage of financial institutions, Flaherty said.
Plus, the G20 should also consider Canada's new proposal that would see financial institutions create a security that would automatically be converted into equity if a bank runs into trouble, he added.
The use of contingent capital would create self-insurance pre-funded by investors to protect the solvency of the bank" he explained.
The global bank tax and stabilizing global finance will be at the top of the agenda at meetings of G20 finance ministers and at meetings of the IMF in Washington in the coming days.
The ministers hope to agree on strategies to prevent future financial crises, and pass their recommendations on to leaders meeting at the G20 summit in Toronto in June.