Canada's financial services sector, one of the few in the world not to seek a government bailout, is urging the province of Ontario to lower its corporate tax rate as the region's economy slows and rumors of layoffs loom.
So far, financial institutions in Toronto, North America's fourth-largest center for financial services, have avoided the massive job cuts seen at their U.S. counterparts. Recruiters, though, note that employees are growing increasingly worried as economic problems in the U.S. creep north and pressure the profits of Canadian banks.
Canada is in its first recession in 17 years. The Bank of Canada is expected to cut interest rates to historic lows of 1 percent. Don Drummond, chief economist at Toronto-Dominion, believes the first half of 2009 "looks pretty terrible for Canada," according to a recent Reuters report. Since November, Canadian lenders have raised about C$6.7 billion by selling common and preferred stock, according to Bloomberg. Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada, all plan to sell shares to raise capital.
Impact on Toronto
For the province of Ontario, the prospect of major job losses in financial services could be particularly worrisome. The Toronto Financial Services Alliance estimates firms in the province employ more than 222,000 people. A recent Canadian Bankers Association filing with the province estimates the six largest financial institutions paid C$2.2 billion in taxes to the Ontario government in 2007. In addition, the industry was one of the province's largest generators of GDP.
"While some progress in building a more productivity-enhancing tax system has been made in areas such as capital tax and tax administration, Ontario's core corporate income tax system (CIT) remains a drag on improving Ontario's productivity," says the CBA. "As other provinces' CIT rates have fallen, Ontario's CIT rate has climbed to 14 percent, tied for the third highest in Canada."
The CBA proposal, one of many submitted as part of Ontario's budget process, drew a heated response from Toronto Mayor David Miller. The Star newspaper quotes Miller as saying that attracting qualified people - and not lower corporate taxes - is the key to keeping banks and other financial services companies in Toronto. The budget is not expected to be finalized for several months.
"As part of our plan for encouraging innovation and reducing business costs, the CBA recommended that the government formulate a long term plan to make Ontario a tax competitive jurisdiction by reducing the provincial corporate income tax rate," Andrew Addison, a CBA spokesman, told eFinancialCareers News. "This is keeping in mind of course that the Ontario government must make dealing with the current economic conditions a priority but, at the same time, there must be longer term goals as well."
Slow Decline on Jobs
Already, there are some signs of a slowdown in employment. Data from the Investment Industry Association of Canada shows a roughly 1 percent decline in security industry employment between the 2008 third quarter and the corresponding period in 2007.
Industry officials remain confident of their prospects, even though some layoffs are expected.
"There are always cyclical changes in employments levels," says Brian Smith, a spokesman for the Toronto Financial Services Alliance. "We have not had huge number of new equity issues ... You don't see a whole lot of IPOs. I would not be surprised if there was some downsizing, but I don't see massive problems facing the industry (like in the U.S.)"