Canada does not need global bank tax, Flaherty says

Date: Friday, June 25, 2010
Author: Investment Executive

Canada’s finance minister says the global bank tax “gets much more attention than it deserves,” and stresses that G20 leaders must focus on more pressing financial reforms when they meet this week.

Jim Flaherty said Thursday the countries that used taxpayer money to bail out their banks, like Britain and the United States, are those calling for the tax, but Canada and many other countries whose financial sectors were not bailed out by public money oppose the idea.

“Is there going to be a global bank tax? No,” Flaherty said bluntly before delivering a speech to the Toronto Board of Trade.

“Why not? Because the majority of countries in the G20 don’t want it. “

Flaherty said the most pressing issue at the summit is developing a strategy for sustainable economic growth-- including the need to balance spending cuts and economic stimulus.

Flaherty urged the need for agreement on government spending cuts and specific deficit reduction targets at the G20 meetings.

After the European debt crisis rocked world markets and threatened the global recovery, the issue of spending cuts has divided G20 countries, with Britain and Germany pledging deep cuts to balance their budgets and more moderate proposals put forth by Canada and the United States.

Canada plans to continue its stimulus spending until next March.

“One of the key issues this weekend is striking that balance on economic growth,” he said. “One size does not fit all quite frankly, different countries in the G20 are in different fiscal positions.”

Flaherty said there must be a balance between restraint and stimulus so the global economy doesn’t sink into a double dip recession.

Leaders agreed on the need for massive global stimulus measures at its first meeting in Washington in 2008, during the height of the financial crisis. At their next summit in London, they put the package in place.

In Pittsburgh last September, leaders agreed on the need for a longer-term framework for a healthy global economy.

Flaherty repeated Thursday what he has said throughout the recession and recovery -- that Canada’s economy is fundamentally strong and its banking sector is also better and more risk-averse than many of its global peers.

“We are the envy of the world,” he said. “One of the key lessons of the global recession is that key macroeconomic policies matter.”

The Canadian economy lost about 400,000 jobs during the 2008-2009 recession -- mainly in manufacturing and some resource industries -- but has gained back about three-quarters of those jobs in the last year. Recovery has been strong in housing, industry, construction and the public sector helped by stimulus spending, recovery in the auto industry and improved trade.

Flaherty said Canada already taxes its banks quite heavily and there is no need for a punitive bank tax in this country that would reduce their ability to lend at a time when lending is crucial to help boost the recovery.

Canada has proposed an alternative capital protection scheme that is still being discussed in the international community.

Flaherty said leaders that want a bank tax, can go ahead and implement one in their own countries.

Earlier this week, the minister stopped in New York, where he released a government report that claims Canada is far ahead on the key priorities that face G20 leaders, including fiscal consolidation, trade liberalization and financial sector reform.

At a G20 finance ministers meeting in South Korea earlier this month, Flaherty won a key battle to block a global bank tax from being applied uniformly on all member countries.

The tax is favoured by several large European countries and the United States as a way to create a fund that would be dipped into if important financial institutions ever faced failure in the future.

But Canada has been lobbying world leaders for months that countries that didn’t need to bail out their financial institutions during the recent crisis shouldn’t have to punish their banks for what others did.