Stockwell Day, President of the Treasury Board and Minister for the Asia-Pacific Gateway, centre, attends a signing ceremony this week at Canada Pavilion at the World Expo site in Shanghai.Eugene Hoshiko/The Associated Press
China is supportive of Canada's efforts to quash plans for a global bank tax and could prove a key ally in talks on the controversial measure at the Group of 20 summit in Toronto next month, according to Treasury Board president Stockwell Day.
Mr. Day met with Bai Lichen, vice-chairman of the Chinese People's Political Consultative Conference, in Beijing Wednesday and discussed Canada's opposition to the plan to impose a levy on financial institutions after a series of government funded bank bailouts during the global financial crisis.
Mr. Bai "certainly shared my view when I said that Canadian banks should not pay a penalty for something they did not take part in. That was his view about their system," Mr. Day said in Beijing Wednesday.
Canada's government launched a global offensive this week against the bank tax. Europe and the United States support the idea, hoping to extract some of the government money that banks were given to avoid collapse during the financial meltdown in 2008 and 2009.
"We're entitled to disagree with them when they've got it wrong," said former deputy prime minister and former finance minister John Manley, who is currently the head of the Canadian Council of Chief Executives. Mr. Manley is also on the board of Canadian Imperial Bank of Commerce.
While he strongly opposes the tax, he also noted that Canada could risk alienating other countries if there is broad consensus in favour of the tax.
"It could be very difficult to administer effectively if some countries opted out of it, because it would then just be an incentive for banks to move operations," Mr. Manley said in an interview. While the United States will be an important financial centre no matter what, Canada would probably attract some financial business from its southern neighbour if the U.S. imposed the tax, he said.
The government of Prime Minister Stephen Harper believes that Canadian banks should not be punished because they were not to blame for the financial crisis, nor did they need government bailouts to stay afloat, unlike many U.S. and European firms.
Chinese banks are in a similar situation to Canadian banks, Mr. Day said, and Mr. Bai, a high ranking Chinese government official, is supportive of Canada's stance on this issue. Most Chinese banks, however, are government-controlled unlike Canada's private sector banking system.
"He fully identified with our position that a country that wasn't part of the problem shouldn't have to pay a penalty as if they were," said Mr. Day.
Cabinet ministers from the Harper government have fanned out across two continents to restate Canada's opposition to a global bank tax, taking full advantage of one of those rare issues that plays well with both economists and many voters.
"As far as I can tell, Canada is doing this because it's the right policy response," said Don Drummond, a former high ranking official in the Finance Department and a vocal critic in the past of Mr. Harper's decision to reduce the GST. "The notion of a bank tax makes no sense. For anybody. But naturally it makes the least sense for Canada, where the taxpayer was never called upon to support a bank."
That's the message Finance Minister Jim Flaherty delivered to Indian and Canadian finance executives this week in Mumbai, as did Mr. Day in China and Trade Minister Peter Van Loan in Washington. Industry Minister Tony Clement and Foreign Affairs Minister Lawrence Cannon addressed the home crowd at a press conference in Ottawa.
"We believe fundamentally you do not tax your way to prosperity in the first place and you shouldn't have a punitive fee attached to those institutions that were not part of the problem," Mr. Day told reporters after a speech this week in China.
The Harper government's lobby against the bank tax brought some unexpected opportunities. The debate has become a mainstay of the international financial press, and with each outcry against the idea of bank levy, Mr. Flaherty is presented with an opportunity to highlight the relative strength of Canada's economy and financial system.
"It's a great opportunity to grandstand and show off and highlight Canada's virtues in the banking sector, both on the regulatory side and the management side," said Ian Lee, the head of the MBA program at Carleton University's Sprott School of Management.
Canada's unusually aggressive stand against its traditional diplomatic allies in the United States and Europe also has brought the Harper government closer to Bay Street, making an often volatile relationship less antagonistic.
Through a series of phone calls with one another and one-on-one meetings with Mr. Flaherty, the chief executives of Canada's largest banks and insurers have agreed to present an unusually united front as the country prepares to host the G20. It's a team effort that's also backed by Canada's banking regulator and central bank governor.
After Sun Life Financial's annual meeting Wednesday, chief executive Don Stewart added his voice to the chorus of officials who are speaking out against a bank tax, saying: "It's hard to see how that's favourable for Canada."