The federal Liberals' campaign promise to hike taxes on the most profitable financial institutions’ earnings is still chock-full of unknowns, according to veteran banking analyst John Aiken. ​

“The initial reaction is that this is negative, it’s a drag on the bank’s earnings,” said Aiken, head of Canadian research at Barclays, in an interview. “However, there’s not enough details to truly go through right now.”

“There’s a lot of spending initiatives in the Liberals' platform. They’ve got to pay for it some way, but we find it actually kind of surprising they’re targeting the financials in particular, and not some of the other sectors that have done very well through the pandemic.”

Aiken's reaction comes the day after Justin Trudeau’s Liberal Party won a third consecutive election, but failed to secure a parliamentary majority.

On the campaign trail, Trudeau promised to raise the corporate tax rate on banks and insurers earning more than $1 billion a year to 18 per cent from 15 per cent.

At that profit threshold, all six of Canada’s major banks would be impacted, as well as insurance giants Manulife Financial Corp., Sun Life Financial Inc. and Great-West Lifeco Inc.

The Liberals also plan to establish a so-called Canada Recovery Dividend to help fund the government's housing plan. Its impact to financial institutions’ profits is another unknown as its exact structure is still being developed, Aiken noted.

“This tax, right now, does appear to be focused on the banks specifically, but again, the Canada Recovery Dividend may be used on a different platform, and that may impact the lifecos more than the banks. But again, right now we just don’t have the details to be able to figure that out at this point.” he said.

One more important unknown, according to Aiken, is whether the tax would be applied to international operations or just on Canadian earnings. The former would be more of a drag on the banks than the insurers due to their U.S. exposure, he said.

Aiken said government support programs have indeed helped the Canadian economy weather the impact of the COVID-19 pandemic, but pointed out the big banks are already shelling out more in taxes compared to prior years due to strong earnings.

“The banks were not the only sector to actually do well during the pandemic,” he said. “This is a more targeted rifle-shot on the sector versus others. I’m surprised this was the approach and not broader-based to try and get more revenues from all the sectors that did benefit.”