Ottawa Sun
Published: Wednesday, May 26, 2010

Taxed to prop up banks: More important to make regulatory changes than pay into insurance fund

There's no denying that global financial sector decisions -- mostly in the U.S. and Europe -- from investing in repackaged non-performing mortgages to extending credit well beyond their low capital leverage thresholds caused the most recent global recession.

And we all know that governments, read: Taxpayers, in many nations ending up bailing out these banks.

Fortunately, Canadian taxpayers didn't have to bail out our banks as occurred in many other countries.

This is due to the foresight of our regulators, the policies of successive governments of blue and red stripes for the past 50 years and indeed, the leadership and measured approach to large-scale risk that has become the hallmark our banking sector itself.

Sadly, those countries that did bail out their own financial sectors are now pushing for a global bank tax to build up a so-called insurance pool of funds in case the banks go under again.

In fact, the International Monetary Fund, at the request of the G20, has advocated two forms of taxation on the banking sector, first a tax to create this so-called insurance fund and second, a tax on banking profits and compensation practices.

PASS COSTS ALONG

As much as we all have individual banking stories to tell from service fee intransigency to foreign currency VISA transactions and who knows what else, our Canadian government is on the side of angels in resisting any and all calls for a global bank tax.

And to employ the language of my friends on the political left for a moment, corporations don't pay taxes anyway. They merely pass their tax burden through to consumers in the forms of higher prices and fees and/or to their rank-and-file employees in terms of lower wage increases, diminished benefits, etc. So any global bank tax would be paid by consumers in the form of higher Interac charges, new service fees and the like.

Moreover, if the proposed future bailout fund actually operated like an insurance scheme, then Canadian banks would have to be assessed on their actuarial risk -- past conduct and existing exposure to risky credit -- which is not what is being proposed.

More to the point, why should our financial institutions be penalized for the brazen greed and poor decisions made by some of their peers in other countries?

Our banking sector is a source of stability and national competitive advantage: A new tax would only diminish this not to mention that a good chunk of Canadians' private retirement savings are predicated on a healthy and profitable banking sector.

The responsible approach is not to tax banks in the event of any future calamity, but to establish a stronger regulatory framework that ensures the calamity of the 2008 financial meltdown never occurs again. And this is where G8 and G20 leaders must focus their policy-making energies.

PROVEN PATH

In November 2008, the G20 collectively pledged to do just this so it seems only appropriate that next month's G8 and G20 meetings in Huntsville and Toronto provide a forum not to propose new taxes, rather, a moment of accountability as to what regulatory progress has been made to strengthen banks in their own backyards.

Or is the bank tax notion simply convenient cover for the failure of other nations to make the long-overdue regulatory changes that Canada has had in place for decades?