Some of that surtax on corporate profits is actually coming out of your pension
Canadians, did you cheer when the federal Liberals and New Democrats slapped a surtax on bank and life insurance profits in the 2022 budget?
Did you high-five the following year when the federal Conservatives vowed to sue big pharmaceutical companies?
Brace yourself!
That surtax is a levy on your retirement income (all else being equal); similarly, pharma lawsuits, if successful, would ultimately be a tax on what you save for your senior years.
You see, we’re no longer in the 1950s when most profits of corporations went to the wealthy. Over the past seven decades, that distribution has flipped.
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Many Canadians, if not most of us, first became owners of corporations through contributions to the Canada Pension Plan or the CDPQ Caisse de dépôt et placement du Québec. The latter began investing in corporations in 1967, while the CPP started in 1999.
We’ve also bought into corporations at home and abroad through dozens of other pension plans. Then there are mutual funds, not to mention insurance funds with a savings component and more. Even some hedge funds invest our money on our behalf for pension funds. And, of course, many Canadians invest directly in stocks on their own or through employee stock-ownership plans.
There’s been an ownership revolution, and now low and middle-income Canadians benefit from corporate profits. I can say that because, despite our wealth disparities, pension funds are normally capped at modest income levels (thus providing sufficient retirement income for a wide range of people without disproportionately benefiting high-income individuals), mutual funds and ETFs are bought mainly by low- and middle-income people, and because the rich make up only a tiny proportion of the Canadian population.
In September 2023, Canadians owned about $4.38 trillion – that’s trillion with a T – worth of pension and mutual fund assets. According to The Investment Funds Institute of Canada, that includes $2.18 trillion in mutual funds and ETFs. Turning to pension funds, StatsCAN Plus reported we held $2.20 trillion in the same month.
To put that $4.38 billion into context, the market capitalization (all shares multiplied by their closing prices on September 30, 2023) of the TSX and TSX Venture Exchange was $3.95 trillion. We shouldn’t – and we wouldn’t – sell all our stocks, bonds, and other pension and mutual fund assets, but if we did, we could buy every share of every stock on those exchanges.
We see similarly massive holdings in the United States through pension, mutual, and other funds. For example, the Investment Company Institute, which represents mutual fund and ETF providers, reported $25.5 trillion in total net assets at the end of September.
Practically every adult Canadian now owns a piece of Canada’s – and the world’s – biggest corporations. Through our funds and even some direct investing, we all own small slices of major corporations at home and in scores of other countries. Virtually every adult Canadian contributing to a pension plan or equity mutual fund has become a capitalist.
That includes every member of Parliament and provincial legislatures, as well as members of unions and left-leaning economists. We all share in corporate profits and we all suffer losses when big businesses have red ink on their bottom lines.
As for the surtax, the Parliamentary Budget Officer estimated in September 2022 that it would send $2.3 billion to the government in that fiscal year. Since banks and life insurance companies are favourites of pension funds and mutual funds, some of that $2.3 billion would have been diverted from the retirement funds of low and middle-income Canadians.
Yes, many Canadians feel financial pain, because of higher than average inflation and other factors. But even low-income Canadians are building substantial retirement savings, thanks in part to their ownership of corporations.
It’s also true that low-income citizens have fewer savings than rich citizens, but, overall, this tide is raising all boats. Never before in history have all Canadians seen such wealth being put away for their retirement.
Second, as new capitalists who own slices of many thousands of corporations, we should become even richer in coming years. We have harnessed the power of corporate earnings and compound interest.
So, here’s the type of headline every Canadian ought to welcome: TD Bank hikes dividend as profit beats expectations.
In summary, an ownership revolution led to low- and middle-income Canadians becoming significant owners of big corporations. The profits of those corporations are helping fund the retirement of every, repeat, every Canadian.
Robert F. Abbott is a freelance writer who has analyzed more than 1,000 corporations for online investment sites.
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