Fighting the bank tax: Political tactic or economics? Some see it as a diversionary tactic. Others say the government is making an important point. By Anca Gurzu Published May 26, 2010

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Momentum for a global bank tax was growing fast, especially in Europe. So last week, the government strengthened its public campaign against this idea by sending five Cabinet ministers on the road to collectively argue against the bank tax and in favour of stronger bank regulations.

Finance Minister Jim Flaherty in Mumbai, Treasury Board President Stockwell Day in Shanghai, Trade Minister Peter Van Loan in Washington, and Industry Minister Tony Clement and Foreign Affairs Minister Lawrence Cannon in Ottawa all repeated in one day the argument Canadian officials have been making for the last few weeks: Canadian banks should not be punished with a tax since they didn't need to be bailed out during the recession.

The Harper government has been receiving strong national support for its fight against the bank tax from all corners and levels, with some experts saying the campaign is further cementing Canada's reputation as a safe place to invest.

However, critics say the especially overt push against the tax also hides a covert political strategy to divert the public's attention away from the two topics that have negatively tainted Canada's reputation both domestically and internationally: the abortion debate and climate change.

"I think it's a diversionary tactic to take attention away from subjects they regard as unpleasant on which the Harper government has been isolated," said Liberal Finance critic John McCallum. He did, however, say he also opposed a bank tax.

The idea behind the measure is to control excessive risk-taking by big banks by creating a fund available in case of another crisis, which would not see taxpayers' money being pumped in to prevent these institutions from bankruptcy. The United Kingdom and other major European countries have expressed strong support for the initiative. The International Monetary Fund also endorsed the concept.

During his trip to India, Finance Minister Flaherty called the bank tax debate a "distraction" from the main issues surrounding financial reform. Canada's alternative to the bank tax is called embedded capital: institutions would issue bonds that are convertible to shares in case of looming financial trouble.

Government officials could have chosen to work behind the scenes on their message, "but they wanted to create this public spectacle for public domestic reasons," and put forward an issue which can score them points, Mr. McCallum said.

Prime Minister Stephen Harper has been inundated by waves of criticism over his government's decision not to fund access to abortion as part of Canada's maternal and child health signature project ahead of the G8 and G20 summits—a situation at odds with the policy of several other G8 countries as well as Canadian domestic policy. A recent Harris Decima poll showed the majority of Canadians disagree with the government's decision.

Canada's poor record in battling climate change was also brought to the foreground a few weeks ago. Both UN Secretary-General Ban Ki-Moon and European Commission President José Manuel Barroso used direct language and called on Canada to act get its act together on the environment.

Randall Germain, chair of the political science department at Carleton University, called the government's anti-bank tax tactic "smart politics."

"In a way, this is an attempt of the Conservative government to get ahead, to actually gain some visibility on an issue on which they should almost by default have some standing in: the stewardship of the economy," he said. "They are trying to wrap this economic issue in a Canadian flag and say 'We have a model here and that's why your bank idea is bad.' Maybe they can bring forward the perception that they are standing up for Canada and that they are holding the Canadian model as something to emulate internationally."

By raising their profile on this issue, they are seen as providing leadership, Mr. Germain added.

Canadian officials defended their opposition to the bank tax by arguing that it would implicitly also mean a tax on consumers, and that stronger regulations are the solution.

Daniel Schwanen, senior economist and deputy executive director of programs at the Centre for International Governance and Innovation, described the government's argument as "certainly a feel-good message," but also "fair game."w

"The strategy is to highlight what Canada has done well and obviously domestically is to play to the fact that we would be paying for [the tax] in Canada," he said. "It's just like someone who has a good driving record, but their insurance would go up."

The government's stance on the bank tax is legitimate, said John Wright, senior vice president of polling firm Ipsos, adding he does not think a covert political strategy is driving the government's agenda.

"I see it as an economic strategy," he said. "And if it makes Canada look good to the electorate that they are doing a good job, they will be rewarded for it."

Good news is usually a good way to deflect from criticism, Mr. Schwanen said, referring to the Canadian banks' good standing during the recession. However, even without the criticism on abortion funding and climate change, the government would have publicly shared this good news anyways, he added.

Internationally, Mr. Schwanen said, the government is also sending a public message to foreign investors, advertising Canada as a low-risk investment opportunity.

"You can emphasize a really good performance on the part of Canada, whereas no greenhouse gas emissions for example, not matter which way you cut it, we have probably had the fastest rate of growth...certainly among the rich countries," he said. "In this day and age, I think the economy still trumps other issues, so we could point to ourselves as being quite frankly—I wouldn't say guiding light, but pretty close, in terms of some economic highlights."

But these summits should not be about winners and losers, said Jeremy Kinsman, former Canadian ambassador to the EU. Although the bank tax is addressing an issue felt most deeply in the US and the EU, Canada also functions within the North Atlantic economy.

"When does Canada represent something other than narrow defensive interests?" Mr. Kinsman wrote in an email. "Supply management keeps us from being a player in international trade, oil-sands neuroses keep us from being a thinker and mover on climate change, and the fact that our banks came out OK keeps us from participating thoughtfully in a massive economic and political problem's solution."

A communiqué issued after last month's G20 finance ministers' meeting in Washington did not endorse the bank tax, which may be a sign the issue is now mute.

agurzu@embassymag.ca