By Dave Craigen Summer may be winding down, but in Ottawa, budget preparations are ramping up. The House of Commons finance committee has collected pre-budget submissions and our finance minister is seeking ideas on how to boost economic growth and job creation.
Canada’s credit unions have their own ideas about how the federal government can grow the economy and create jobs. A key credit union system recommendation urges the federal government to include a Credit Union Capital Growth Tax Credit (CGTC) in the 2015 budget. This proposed tax credit will help increase credit union lending to small businesses, farms and families across Canada.
On the surface, credit unions may look like banks, but they aren’t the same. The differences are many. Credit unions are smaller. The average credit union has 81 employees, compared to 240,000 domestic employees for the average bank. Credit union boards of directors are made up of local citizens. Their headquarters are local, not on Bay Street. Their lending professionals live where they lend and that local knowledge makes for better service. Credit unions are cooperatively owned and don’t issue shares on capital markets like banks do, so that on average, nearly 80 per cent of credit union capital consists of retained earnings, compared with less than 45 per cent for banks.
This last point is crucial because 40 years ago, it was well understood. At that time, parliament put in place an additional tax deduction for credit unions that recognized the limited ability of credit unions to easily raise capital and helped offset some of the tax preferences enjoyed by banks. It was good policy and helped support credit union capital growth in much the same way that the capital gains tax deduction helps banks. Unfortunately, two years ago, Ottawa began to phase out this deduction, increasing taxes paid by credit unions and caisses populaires by an estimated $42 million a year, slowing credit union lending and local economic growth.
Conversely, it’s estimated that the new CGTC would generate $700 million in much-needed lending to homeowners and small businesses nation-wide, far exceeding its $66-million price tag. This means faster economic growth and more jobs for Canadians.
The CGTC is able to generate this investment because it is a tax framework that works with the credit unions’ unique structure, rather than against it. For 40 years, the tax status of credit unions and their accommodation at the federal level went undisturbed, operating to create a competitive balance precisely as it was intended by parliament.
By working with credit unions, and respecting that they are a different kind of financial institution structurally, the federal government can contribute to economic growth and job creation, and drive competition in the financial sector that results in thriving local economies. Credit unions share these goals with the government. We urge Minister Joe Oliver to include the Credit Union Capital Growth Tax Credit in his budget plans for 2015. If you’re in favour of stronger local economies, I invite you to let the minister know that your credit union matters and it should matter to Ottawa by going online.
Dave Craigen is chief executive officer of First Credit Union, founded and based in Powell River for 75 years.
