Canada, the G20 Bank Tax, and Why We Really Need a National Securities Regulator

27 05 2010

Bay Street in Toronto

Most G20 countries favour a new tax on financial activities designed to discourage speculation. Canada has said that it has no plans to impose such a tax. This raises the possibility of Canada becoming something of a tax haven and Toronto becoming a real global financial centre at long last.

The Globe reported yesterday that “Should the Americans and Europeans press ahead with taxes on their banks while Canada holds firm in its opposition – an increasingly likely scenario – foreign banks operating in financial centres such as New York and London might look at picking up and moving to Toronto.”

This would be good news for Canada and very good news for Ontario, since Canada’s financial capital is also the political capital of Ontario. Ever since the advent of continental free trade and the deindustrialization of the Great Lakes states, its primary trading partners, Ontario has been struggling to find a new role for itself in the global economy. Ontario used to be Canada’s wealthiest province because it was where most of the manufacturing was. But now the factory jobs have moved to Asia and Ontario’s per capita GDP has fallen to close to the national average. Dean Acheson said in the 1950s that “Great Britain has lost an empire and has not yet found a role”. That sentence applies equally to Ontario in 2010. Having lost its empire, its captive markets in the other nine provinces, with the coming of free trade and globalization, Ontario has been floundering. Now it has the chance to become a global financial centre, which would deliver vast numbers of high quality not to mention green jobs to Ontario people.

Financial services are very mobile and very responsive to regulatory changes. When the Sarbanes-Oxley Act was enacted by the United States in 2002, business fled from Wall Street to London, cementing London’s place as the world’s preeminent financial centre. Of course, this raises the question of why all of the Wall Street firms didn’t simply flee to Toronto, which is much closer to New York, in the same time zone, and has cheaper real estate as well. Another advantage is that Toronto has a very multilingual workforce, which means that it is easy to find people who speak commercially important languages such as Mandarin.

So why didn’t the Sarbanes-Oxley refugees come to Toronto instead of crossing the ocean? Part of the reason is that London already had a certain critical mass as a financial centre, whereas Toronto’s Bay Street did not. Another factor was that Canada lacks a national security regulator. There is no equivalent of the SEC or the FSA in Canada. Even though the Toronto Stock Exchange is Canada’s national stock exchange, even province regulates securities issued in it. By all accounts, this is a major hurdle to Canada attracting global business.

This is why I was a bit depressed when I saw that the federal government draft legislation for a national securities regulator would allow provinces to opt out. See here.  This is bad news. How Canada hope to take advantage of the imposition of a bank levy in other industrialized countries if we don’t get a national securities regulator in place soon?

The Ontario Government and the Mayor of Toronto need to start playing hardball on this issue. They need to use their clout in Ontario to get the federal government to coerce the other provinces into accepting a national securities regulator.  Above all, Financial Minister Jim Flaherty needs to get his ass in gear and insist on a national securities regulator. Flaherty’s own riding, which is in a Toronto suburb that used to be a manufacturing hub, illustrates why it is imperative that Toronto be made into a global financial centre. And this can’t be done without a national securities regulator.Will somebody stand up for Ontario?

Jim Flaherty, MP for a rustbelt suburb of Toronto, should create new economy jobs for his constituents