Earlier this month, federal Finance Minister Joe Oliver launched a public consultation on a proposed Taxpayer Protection and Bank Recapitalization regime that would convert liabilities, such as bonds sold to investors, into regulatory capital, like common stock. The regime would also ensure that when a bank fails, its shareholders and creditors bear the losses, not taxpayers.
In an exclusive interview, 74-year-old Oliver — who will run for re-election in the Ontario riding of Eglinton-Lawrence next fall when Canadians are scheduled to head to the polls — spoke this week with Ottawa correspondent Christopher Guly about the proposed measures, as well as plans to roll out the much-anticipated national securities regulator next fall.
Advisor.ca: What’s the motivation behind the proposed bail-in rather than bailout for potential bank failures?
Oliver: According to the World Economic Forum, we have the strongest, most stable banking system in the world, so we’re talking about a highly unlikely event. But we have to be prudent and also want to be consistent with other major developed countries. So we’re putting out a consultation to look at this idea of creating an additional category of capital that would be converted into equity and thereby reduce the possibility that Canadian taxpayers would be on the hook.
A.ca: Where are things at regarding a rollout for a national securities regulator, given Quebec and Alberta remaining as holdouts to the plan?
O: We announced that we were expanding the group [to include New Brunswick and Saskatchewan] and think we now have momentum to go ahead with this important initiative, which will strengthen the capital markets, provide better protection for investors, help manage systemic risk and enhance Canada’s reputation. A common regulator will also be more efficient because it will administer a single set of regulations, reduce red tape and be self-funded through a single set of fees that will be uniform across the country.
We’re also making sure that it’s consistent with the Supreme Court [of Canada] guidelines. It’s basically a delegated model, which is voluntary and directed by an independent board. But there will be a council of ministers of all participating jurisdictions that will oversee the system.
The cooperative system is about balance – preserving local perspectives while bringing about reform nationally.
A.ca: Do you expect to proceed without Alberta and Quebec?
O: We remain hopeful they and [the] other [four] provinces will join in. The point is there will be an opportunity for all provinces to participate in the development of regulatory policy, and we think Alberta and Quebec could have as much or more influence on the development of policies than is currently the case under the present system.
A.ca: Have you set a deadline for the six remaining provinces and three territories to opt in?
O: No. In fact, I’ve been very explicit that the door will always be open. We hope they will join. If they don’t immediately, we’ll make sure the cooperative regulatory has a collaborative relationship with those commissions, which are not part of the common scheme.
A.ca: Where are we with income splitting?
O: That’s a subject that pertains to next year’s budget and I’m not in a position to discuss the details. The Prime Minister [has been] pretty clear that income splitting has been good for seniors and can be good for families.
A.ca: Can we expect any tax changes in the coming year?
O: We are looking forward to a budgetary surplus of $6.4 billion plus a $3-billion contingency fund, and are going to be looking for ways to reduce taxes for Canadians.
A.ca: Can you speak to any forthcoming fiscal policy changes?
O: We’re not going to engage in any wild stimulus spending. Whatever spending we do will be in the context of a balanced budget. But first we’re looking at ways to reduce taxes.
A.ca: A recent C.D. Howe Institute report suggested that delaying deficit reduction could decrease the unemployment rate and create about 75,000 jobs.
O: It looks at a $10-billion deficit for three years and that’s another $30 billion in debt, which could cost billions of dollars in additional interest and is essentially an intergenerational issue. We’re asking our kids to pay for our current expenditures.
We’ve arrived, with some difficulty, at a point where we’re able to declare a surplus. This is not the time during economic growth to start deficit-stimulus spending.
Read: Ottawa narrows deficit
A.ca: A steady hand then?
O: Being creative as well. We have an opportunity now to really take advantage of some of the sacrifices we’ve made.
We can have a balanced budget, lower taxes, continue to increase transfers to individuals and provinces, and focus on expenses, which will help drive the Canadian economy.
We can actually have it all. But we’re operating as a great trading nation in a global economic environment, which is still fragile.
We have to maintain our fiscal strength to be able to respond to any negative events, such as in Ukraine and the Middle East — things that have economic implications that reverberate around the world and are affecting our exports right now.
(This interview was edited for style and length.)