2016 Federal Pre-Budget
Submission
Submitted to:
Department of Finance
February 3, 2016
Introduction
The Canadian Credit Union Association (CCUA) welcomes the opportunity to participate in the
Department of Finance’s 2016 federal pre-budget consultations.
As of the first of this year, CCUA has replaced Credit Union Central of Canada as the new
national voice for the 316 credit unions and caisses populaires across the country outside
Québec.
Credit unions are full-service financial institutions owned by their members. More than five
million Canadians trust a local credit union for their day-to-day banking. Collectively, credit
unions employ more than 27,000 people and manage $186 billion in assets. They also occupy
seven per cent of the mortgage lending market outside Québec, 11 per cent of the small
business market and 11 per cent of lending to the agricultural sector.
As financial co-operatives, credit unions are inextricable from their communities remaining
invested in their members’ success long after competitors have left. In fact, a credit union is
the only bricks-and-mortar financial institution in more than 380 communities.
Like your government, we believe that Canada’s economic future lies in a strong middle class.
With the right public policy, credit unions can partner with government and the private sector
to provide investment that will create sustainable growth and economic opportunity. These
principles guide CCUA’s recommendations for the 2016 Budget:
1) Enabling stronger credit union lending through federal loan guarantee programs,
including:
a. expanding the current loan guarantee program aimed at foreign-trained new
Canadians to work in their professions in Canada;
b. offering loan guarantees, as part of the government’s future infrastructure
program, that would allow credit unions to support additional local social
infrastructure projects; and
2) Enhancing competition in the financial services sector by clarifying the transitional
measures for federal credit unions;
3) Facilitating growth and investment through a new tax measure that recognizes how
credit unions build capital.
1. Implementing or enhancing federal loan guarantee programs to support
credit union lending
The credit union system strongly supports federal loan guarantee programs that financial
institutions, including credit unions, can access to provide lending to underserved individuals
and/or to priority sectors of the Canadian economy. For instance, we welcome the recent
implementation of the Portfolio Guarantee Program by the Business Development Bank of
Canada (BDC). When fully implemented, this federal program will offer portfolio guarantees
on loans to small and medium-sized enterprises (SMEs) issued by financial institutions,
including credit unions. This type of program complements the role that private sector lenders
play in providing financing to SMEs.
Building on this initiative, we recommend that two additional loan guarantee programs be
expanded or implemented: (a) a loan guarantee to support credit union lending to foreigntrained new Canadians; and (b) a loan guarantee program to facilitate credit union lending
for social infrastructure financing.
a) Foreign Credential Program – a loan guarantee program to help credit union
lending to foreign-trained new Canadians
In 2012, the federal government – through the Department of Employment and Social
Development - launched the Foreign Credential Recognition pilot program (FCRP) to help new
Canadians gain recognition for their credentials obtained in their home countries.
The FCRP is a loan guarantee program delivered in partnership with nine community
organizations, including four that have partnered with five credit unions: Assiniboine Credit
Union, Libro Credit Union, OMISTA Credit Union, Provincial Credit Union and Consolidated
Credit Union. As of June 2014, these credit unions had made more than 200 governmentbacked loans to skilled new Canadians who require financing to pursue certification or training
to work in their trades or professions in Canada. The total dollar value of these loans is more
than $1.3 million.
Credit unions are uniquely positioned to provide these much needed micro-loans given their
presence in both rural and urban communities. We recommend that the federal government
expand this program and make it permanent in Budget 2016. This would enable additional
credit unions to assist skilled immigrants to be gainfully employed in their field here in Canada.
b) Infrastructure Bank’s loan guarantees to help credit union lending for social
infrastructure projects
Credit unions are a different kind of financial institution. They are democratic financial cooperatives that operate locally and are controlled by their members. Because of this structure,
credit unions do not focus on profit maximization but operate to serve their members and
their communities.
This community focus means that many credit unions have experience supporting social
infrastructure through lending to projects like affordable housing, community centers and
child care facilities. For example, at the end of 2015, Assiniboine Credit Union had provided
over $149.2 million in loans to support affordable housing and child care facilities as well as
women’s resource centers, Indigenous organizations and settlement organizations. Vancity
Credit Union is also involved in social infrastructure lending. For 2014, the credit union
reported that approximately one quarter of its business loan portfolio of $4.6 billion was
invested in “impact”, including in businesses or sectors that support affordable housing and
financial inclusion.
The Minister of Infrastructure and Communities’ mandate letter commits him to make
significant investments to infrastructure projects, including social infrastructure, green
infrastructure and public infrastructure and to establish the Canada Infrastructure Bank to
provide low-cost financing, including loan guarantees, for new municipal infrastructure
projects.
We recommend that the proposed Infrastructure Bank complement the role of private sector
lenders by providing loan guarantees to support credit union lending to infrastructure projects,
particularly in social infrastructure projects. Given their experience in these projects and close
relationship with local municipalities and community agencies, credit unions are well
positioned to champion the vital infrastructure priorities that help foster healthy and resilient
communities.
2. Enhancing competition in the financial services sector by clarifying
transitional measures for federal credit unions
Since they were first announced two years ago, there has been a considerable degree of
uncertainty about the transitional measures for federal credit unions (FCU). These measures
– which include proposals for an extended deposit insurance guarantee, transitional funding
support and extended retailing insurance powers – aim to help interested credit unions move
from the provincial to the federal sphere.
Given that this uncertainty has complicated and may delay decisions about whether to apply
for federal credit union continuance, we recommend that the federal government clarify in
Budget 2016 the parameters around its proposed transitional measures for FCUs.
By bringing clarity to these transitional measures, the federal government would further
define the FCU legislative framework established in 2012. This framework is aligned with the
government’s objective of enhancing competition in the financial services sector.
3. Implementing a new tax measure to help credit unions build capital (Capital
Growth Tax Credit)
The credit union system has been working with the federal government and members of
Parliament to recognize the important differences in capitalization between co-operativelyowned credit unions and shareholder-owned chartered banks.
Like chartered banks, credit unions are required to hold large amounts of capital, but unlike
chartered banks, credit unions rely on retained earnings to meet these requirement. To help
credit unions grow their retained earnings and ensure competitive balance in the tax system,
we recommend that the federal government implement a new Capital Growth tax credit.
Set at 5% of a credit union’s retained earnings increase from the previous year, this new
tax measure would help credit unions lend to middle-class Canadians and create local jobs
in rural and urban areas, while meeting increased regulatory capital requirements. We
estimate that this measure would result in $35 million in forgone federal revenue, but
potentially generate an additional $480 million in lending to small business owners, farmers
and families.
This proposal recognizes that financial co-operatives build capital differently than shareholderowned chartered banks. This fact was well understood when, more than 40 years ago,
Parliament put in place an additional tax deduction for credit unions. That was good policy
and helped support credit union capital growth in that it mirrored the positive impact the
capital gains tax deductions has on building bank capital. Budget 2013 began the phase-out
of this deduction, ultimately increasing taxes paid by credit unions and caisses populaires by
and estimated $42 million a year.
Conclusion
In summary, CCUA urges the Minister to include the following recommendations in the 2016
federal budget:
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Implement and/or enhance federal loan guarantees to support credit union
lending to foreign-trained new Canadians and for social infrastructure
projects
Clarify transitional measures for federal credit unions
Implement a Capital Growth Tax Credit for credit unions
Thank you for the opportunity to participate in this pre-budget consultation process. We look
forward to working with you for a stronger middle class and a growing economy.