OTTAWA — Finance Minister Jim Flaherty has no plans to tax excessive bonuses handed out to bank executives, but warned Canadian bankers Thursday they must follow international guidelines on compensation.
Flaherty was responding to calls by Britain and France for a new international tax on bank bonuses.
In a column in the Wall Street Journal, British Prime Minister Gordon Brown and French President Nicolas Sarkozy wrote that a “one off tax” on bonuses is a priority since bank fortunes have risen mostly due to government largesse.
Flaherty said he will insist that Canadian bankers follow the newly-established rules set down by the G20 on compensation, but that he won’t go so far as to create a new tax.
“We want to grow Canada as a financial centre; we don’t want to impose punitive taxes on anybody,” he said.
“This is not the United Kingdom, this is not the United States,” he added. “We did not have to bail out banks; we did not have to nationalize banks; we did not have to use taxpayers’ money to bail out banks in Canada.”
Nevertheless, the minister expects Canada’s bank executives to follow the new rules on compensation despite a report that bank bonuses will total a record $8.3 billion this year.
Flaherty wrote the banks in October warning the new guidelines would apply in Canada even though the financial problems did not arise here.
He said the federal regulator, the Superintendent of Financial Institutions, is monitoring compliance with the G20 standards.
“I don’t expect we will have non-compliance,” he said.
“But if we do then, through the regulator, certain steps can be taken,” said Flaherty, who was not specific about what actions could be taken.
The G20 guidelines set no limit on executive compensation, but do say pay should reflect risks and should be based on long-term performance, rather than short-term profits.
“Our banks are well above the curve in comparison to some of their international colleagues, (so) I certainly think the Canadians banks are well on their way to complying with the (new) principles,” said Nancy Hughes Anthony, president of the Canadian Bankers Association.
While expected compensation for this year is 18 per cent higher than 2008, she noted, noted that last year was a down year for bank profits. This year’s compensation represents only about a four per cent hike from 2007, she said.
And Hughes Anthony cautioned that the $8.3-billion estimate is for variable compensation throughout the system, not just for top executives.