Bill C-37 (Historical)

An Act to amend the law governing financial institutions and to provide for related and consequential matters

This enactment amends a number of Acts governing financial institutions. It also amends legislation related to the regulation of financial institutions. Notable among the amendments are the following:
(a) amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, and the Trust and Loan Companies Act aimed at achieving three key objectives:
(i) enhancing the interests of consumers,
(ii) increasing legislative and regulatory efficiency, and
(iii) adapting those Acts to new developments;
(b) amendments to the Bills of Exchange Act to provide for the introduction of electronic cheque imaging; and
(c) technical amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Bank of Canada Act, the Bills of Exchange Act, the Canada Business Corporations Act, the Canada Deposit Insurance Corporation Act, the Canadian Payments Act, the Financial Consumer Agency of Canada Act, the Green Shield Canada Act, the Investment Canada Act, the National Housing Act, the Payment Clearing and Settlement Act and the Winding-up and Restructuring Act.

[Winsor Macdonell, Senior Vice-President and General Counsel, Genworth Financial Canada]

Good afternoon. My name is Winsor Macdonell. I am the Senior Vice-President and General Counsel for Genworth Financial Canada.

Our president, Peter Vukanovich, could not be here today and sends his regrets.

I would like to thank the committee for allowing me to participate in the hearings on Bill C-37. I apologize for my late arrival.

Genworth is Canada's home ownership company. We are the largest private sector provider of mortgage default insurance in Canada. Since 1995 we have helped over 700,000 middle-income Canadians achieve the dream of home ownership.

As you are probably aware, mortgage default insurance protects lenders against losses caused by a homebuyer's default on a mortgage, particularly low down-payment mortgages. It should not be confused with creditor life insurance, which has been the topic of discussion recently.

The benefits of mortgage default insurance are clear. It is the fastest and least expensive way for Canadians to get a home and build wealth sooner. Broadly, mortgage insurance increases the efficiency of the entire mortgage industry and contributes to the safety and soundness of the financial sector. Because of these benefits, mortgages with low down payments account for about half of all mortgages originated in Canada, and are a major reason Canada has one of the highest home ownership rates in the world.

Genworth supports the proposal in Bill C-37 to raise from 75% to 80% the loan-to-value threshold above which mortgage insurance is required by law. The 80% threshold is consistent with the threshold used in other major lending countries, such as the United States and Australia.

I would like to take this opportunity to thank the government, and particularly the Department of Finance, for being responsive to the issues raised during the consultation exercise leading up to the legislation. For us, while raising the minimum to 80% is an important change, even more importantly, the review that was conducted highlighted the value our mandatory system brings to Canadian consumers and lenders.

Mandatory mortgage insurance works in Canada because it allows mortgage insurance companies to spread the risk of homebuyer default across a large pool of loans, including varying borrower profiles, different geographic regions, and various lenders. This pooling effect results in fairness and choice for consumers, who pay the same premium regardless of where they live. It is clear that a weakening of the mandatory requirement would result in consumers having to pay considerably more by way of higher interest rates for low down-payment loans.

Our system is working for Canadians. For the average family, real estate assets currently account for about 35% of their overall wealth, up from 29% just four years ago. At the same time, Canada's mortgage insurers collectively reduced premiums twice since 2003, effectively keeping $700 million in the hands of homebuyers.

Mortgage insurance also helps Canadian homebuyers in another way. Genworth is particularly proud when it can help homebuyers stay in their homes when they experience periods of economic distress and default on their mortgages due to temporary job loss or illness.

Beyond individual consumers, mandatory mortgage insurance also benefits the entire mortgage industry. The current system enables vigorous competition between national and regional lenders, like credit unions, and encourages product innovation to help growing segments of the population—such as new Canadians, self-employed people, and renters—to purchase homes. It also helps maintain the availability of mortgage credit at affordable interest rates during good and bad economic cycles, because lenders transfer the risk to well-capitalized, specialized insurance companies.

In closing, we support the change in Bill C-37 to raise from 75% to 80% the loan-to-value threshold above which mortgage insurance is required.

Thank you for your time.

I will be pleased to answer your questions.

Thank you very much.

[David Phillips, President and Chief Executive Officer, Credit Union Central of Canada]

Good morning, Mr. Chair and committee members. I want to thank you for this opportunity to come before the committee today to provide some comments on Bill C-37. My name is David Phillips and I'm president and the CEO of Credit Union Central of Canada.

Canadian Central is a federally regulated financial institution that operates as a national trade association for the provincial credit union centrals in Canada, and through them, for 500 affiliated credit unions across this country. Our credit unions employ more than 24,000 Canadians, serving our members who number over 4.9 million Canadians. At the end of the third quarter of 2006, our credit unions held more than $92 billion in assets.

Credit unions are independent, community-based financial institutions that operate on cooperative and democratic principles. As such, the credit union system is decentralized and diverse in terms of the size and communities they serve. The credit union system does not operate like a bank, and credit unions are not branches subject to centralized direction. Rather, they are locally autonomous institutions that are accountable to their members.

This local focus enables credit unions to respond quickly and effectively to community needs. Credit unions are provincially regulated and from a constitutional standpoint fall under provincial jurisdiction. The federal government regulates two entities in the credit union system under the Cooperative Credit Associations Act, and amendments to that act are part of Bill C-37. The two federally regulated credit union entities are my organization, Canadian Central, as well as Concentra Financial Services Association, which was formerly Co-op Trust based in Saskatoon.

In addition, the federal government regulates several provincial credit union centrals that have chosen to be governed under part 16 of the Cooperative Credit Associations Act.

With this in mind, Canadian Central would like to clearly state its general support for Bill C-37, in particular the proposed amendments to the Cooperative Credit Associations Act contained in the bill. These amendments will make the corporation, under the act, more of an option for credit union organizations interested in pursuing the possibility of a federal corporate charter. There are nevertheless some elements of the act that could be improved and that are not addressed in the bill.

On these points, we look forward to working with the government on a going-forward basis.

I will offer some examples of positive changes to the Cooperative Credit Associations Act that we support in the bill.

The bill proposes to amend the act and make it easier to incorporate a retail association under the act by reducing the number of required incorporators from the current number of ten credit unions to two credit unions, from more than one provincial jurisdiction. The number of ten in the existing act was a nearly impossible threshold for credit unions to meet, as evidenced by the fact that credit unions have not sought to establish organizations under the Cooperative Credit Associations Act.

Secondly, the bill contains provisions that make it possible for corporate entities to convert to a retail association under the act. For example, the bill contains an amendment to the Canada Business Corporations Act that permits a CBCA company to convert to a company under the Cooperative Credit Associations Act and to continue under that act.

Thirdly, the bill will permit a retail association to operate on a level playing field with wholesale banks, where the association limits its deposits to deposits in excess of $150,000. In these circumstances the wholesale financial institutions need not be a member of CDIC. This option may be of interest to second-tier organizations in the credit union system, such as provincial centrals that might be considering a move to a federal corporate charter.

Mr. Chairman, I will confine my remarks at this time to these few points.

In closing, I would like to thank the committee for this opportunity to present our views on Bill C-37. I would be happy to answer any questions the committee may have.

[John Lawford, Counsel, Public Interest Advocacy Centre]

Thank you.

The Canadian Consumer Initiative is a coalition of six major consumer organizations, including the Alberta Council on Aging, Automobile Protection Association, Consumers Council of Canada, Option consommateurs, Public Interest Advocacy Centre, which I represent, and the Union des consommateurs. CCI provides advice and assistance to the federal government to help safeguard consumer interests.

CCI has come before you today to ask this committee to consider embedding a framework for electronic payments into the Bank Act. Although this suggestion is not presently in the form of an amendment, we hope the committee will consider amendments at this late stage in order to benefit banking customers, which includes most Canadians.

Electronic payments include such systems as debit cards, both at ATMs and at point of sale; pre-authorized withdrawals and deposits into consumer bank or credit card accounts; credit card purchases, both at point of sale and without presenting the actual card, such as on the Internet; and new payment mechanisms through the Internet, in particular PayPal, electronic transfers of money through Interac or other online services such as online investing, e-mail money transfers, and soon mobile commerce through cellphones.

The Canadian banking system relies to a remarkable extent upon self-regulatory mechanisms for electronic payments. For example, the CPA has rules regarding pre-authorized debits. However, the code's provisions are not well known. For example, a financial institute can cancel a false debit pre-authorization through CPA regulation H-1. But because consumers are often unaware of the provision, they may believe they are responsible for the transaction and pay for the mistake.

In addition, consumers are only responsible for $50 maximum liability in unauthorized credit card transactions. But this rule is usually a provincial requirement. It is supplemented by no liability policies of major credit card companies. This policy is not contractual, and it could be changed at any time.

Regarding debit cards, Canadians made nearly three-quarters of a billion ATM transactions last year, but all of them were under the CPA's Canadian code of practice for consumer debit card services, a voluntary code. Although consumers are theoretically exempt from liabilities associated with unauthorized debit transactions, they may become liable for debit fraud through an innocuous admission to their bank that their spouse at one time knew their PIN number.

The CCI studied electronic payments in early 2006. We produced a report, which has been provided to the committee. That report concluded that the present hodgepodge of regulation and voluntary codes is inadequate and that Parliament should instead consider legislating in a holistic manner. That is what we are urging the committee to try as it considers Bill C-37.

The Canadian Consumer Initiative believes the following principles would provide a more predictable and effective electronic payment system in Canada, one that's consumer friendly and economically efficient.

The first is universality; it should cover the broadest range of payment technologies. Second, neutrality: all technologies should be regulated by similar rules, if possible. Third, security: payment technologies should be secure. Fourth, accountability: the risk should be supported by the party who creates it. Fifth, transparency: rules, roles, and prices should be transparent to all parties. Sixth, liberty: payers should be allowed to choose the payment technology they prefer. And finally, enforceability: parties should be able to ensure that the framework is effectively enforced.

Changes to the Bank Act to embed this electronic payments framework could be considered at this time. CCI's analysis reveals that this might be achieved by regulation made pursuant to section 410--specifically paragraph 410(1)(c)--of the Bank Act, which gives banks, with ministerial approval, the power of collecting, manipulating, and transmitting information that is primarily financial or economic in nature, as well as designing and implementing information systems to do so.

Subsection 410(3) gives the Governor in Council the power to make regulations about financial information. Therefore, the Governor in Council may have power to regulate the mechanics of electronic payments under this section.

Any information disclosure or other necessary requirements of the framework could be authorized pursuant to either sections 459.4, which is consumer information regulation authority, or section 978, which is general regulation power under the Bank Act.

Although we have not had time to draft possible regulation wording for the committee, we highly recommend the U.S. Electronic Fund Transfer Act. It has since 1980 been in place in the United States, and with appropriate modifications could serve as a basis for drafting a coherent Canadian electronic payments regime inside the Bank Act.

Thank you. I'd be happy to take questions at the end.

[Frank Zinatelli, Vice-President and Associate General Counsel, Canadian Life and Health Insurance Association Inc.]

Thank you, Mr. Chairman.

As you indicated, my name is Frank Zinatelli. I'm vice-president and associate general counsel of the Canadian Life and Health Insurance Association. I would like to thank the committee very much for this opportunity to contribute to your review of Bill C-37, an act to amend the law governing financial institutions and to provide for related and consequential matters.

We welcome this opportunity to appear before the committee as you seek to develop your report to Parliament on this important bill. The industry is extremely supportive of this bill and urges that it be passed in a timely manner.

With your permission, Chairman, I would like to make some very short introductory comments.

By way of background, the Canadian Life and Health Insurance Association represents life and health insurance companies accounting for 99% of the life and health insurance in force across Canada. The Canadian life and health insurance industry provides products that include life insurance, disability insurance, supplementary health insurance, annuities, RRSPs, and pensions. The industry protects about 24 million Canadians and some 20 million people internationally. It makes benefit payments to Canadians of $51 billion a year, has almost $371 billion invested in Canada's economy, and provides employment to over 119,000 Canadians.

Among the various statutes amended by Bill C-37 is the Insurance Companies Act, which is the governing statute for the regulation of life and health insurers at the federal level. Of course, life and health insurers are also subject to the rules and regulations that are set out in provincial insurance acts.

Following up on the June 2006 government white paper on the 2006 financial institutions legislation review, Bill C-37 represents a welcome fine-tuning of the financial institutions legislation and makes changes in three important areas.

With respect to enhancing the interests of consumers, for example, the bill would amend the Insurance Companies Act to require that complaint handling procedures be made publicly available, for mailing and online, for all consumers to access at any time.

With respect to increasing legislative and regulatory efficiency and to streamline the approval regime, for example, the bill would amend the Insurance Companies Act to shift the approval for some transactions from the minister to the superintendent. As another example, it would allow for the granting of more than one approval in a single instrument.

The bill would also reset the sunset date for financial institutions, which is now April 24, 2007, to five years after the coming into force of the Bill C-37 amendments. In this regard, prompt passage of the bill will ensure the legislative stability and continuity that are so important in the financial services sector.

In conclusion, Mr. Chairman, the industry strongly supports the provisions of Bill C-37 that are relevant to the life and health insurance industry and is willing to assist in whatever way it can in ensuring the bill's timely passage.

The industry greatly appreciates this opportunity to participate in the committee's review of Bill C-37. I would be pleased to answer any questions you may have.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Order. I'd like to start with a little bit of housekeeping.

A notice of motion was presented by Mr. McCallum. The clerk tells me that we are going to address the report on income trusts on Thursday, so I don't want to get into a debate. If we decide to get into debate, we'll call a special hearing, but I don't want to interrupt the witnesses.

We're here pursuant to the order of reference of Thursday, December 7, 2006, Bill C-37, an act to amend the law governing financial institutions and to provide for related and consequential matters.

I would like to thank the witnesses for coming.

We will give you up to five minutes for your presentation. If possible, try to stay within that time so that members can ask you questions.

We will begin with Mr. Zinatelli from the Canadian Life and Health Insurance Association Inc.

[Terry Campbell, Vice-President, Policy, Canadian Bankers Association]

Thank you very much, Mr. Chairman and members of the committee. I really appreciate the opportunity to contribute to your review of Bill C-37, the amendments to the Bank Act and other federal statutes.

My name is Terry Campbell, and I am vice-president of policy at the Canadian Bankers Association. With me today are my colleagues Karen Michell, the vice-president of banking operations; and Linda Routledge, the director of our consumer affairs area.

Mr. Chair and members of the committee, the banking industry believes strongly in the importance of ensuring that the legislative and regulatory framework is reviewed regularly in order to keep it up to date with technological developments, to eliminate obsolete provisions that no longer reflect sector realities, and to make the framework as efficient as possible for the benefit of Canadian consumers and the industry's competitiveness. Canada's banks and other financial institutions operate in an environment of rapidly increasing regulatory burden, particularly in light of the explosion of international regulation, which impacts the regulatory environment here in Canada. Since this environment affects the ability of institutions to innovate and serve their customers, it's critical that policy-makers and legislators here in Canada ensure that the legislative framework provides as much flexibility as possible and avoids imposing unnecessary or prescriptive measures.

With these principles in mind, we were deeply disappointed that the government did not adopt our proposals for the insurance rules. In our view, the facts of the case—the benefits to consumers of removing out-of-date restrictions and the positive experiences in other jurisdictions that do not have these restrictions—told a good, common-sense public policy story. Nevertheless, as we heard from the minister this morning and as we've heard from the minister in the past, the government has made it clear that changes will not be made to the insurance rules, so we are turning our attention to the piece of legislation at hand, Bill C-37.

As you know from commentary this morning, the bill is focused on technical matters. Those matters are the focus of our commentary to you today. Describing these matters as technical doesn't mean they're not important for consumers or the efficient operation of the marketplace. Indeed, in some key areas the government has taken positive steps in the direction of modernizing the framework.

One such step that we would like to highlight was mentioned this morning, and that was the government's proposal to amend the Bills of Exchange Act to allow for the introduction of electronic cheque imaging. Canada has one of the most highly efficient cheque-clearing systems in the world, but it's still largely based on the physical clearing of paper cheques. Cheques drawn on one bank and cashed or deposited at another must be physically transported between banks and processing centres—sometimes right across the country—before they can be cleared. The proposed amendments would allow financial institutions to use electronic images of cheques. In effect, rather than having to physically transport pieces of paper, images of the cheques could be sent electronically. Making an already-efficient system even more efficient will speed up the cheque clearing process, reduce the amount of time that funds are held, and, importantly, will reduce risk.

All of this will bring real benefit to consumers. In fact, as was mentioned, the banking industry has been working with the government on this and has agreed to reduce the maximum period for the very small number of cheques that actually have holds on them from ten business days to seven business days by April, and to then reduce that further to four business days upon full implementation of the Canadian Payments Association's cheque imaging system.

Another positive step in Bill C-37 is the proposal to streamline the foreign bank entry regime. We have a highly competitive financial services marketplace in Canada, with some fifty foreign bank subsidiaries and foreign bank branches competing to provide services to individual and business consumers.

While Canada's market is open to the entry of foreign banks, the actual structure of the legislation is highly complex, cumbersome, and difficult to navigate. The rules apply to real foreign banks as well as to what are called near-banks, or companies that are not banks in their own country but want to undertake activities in Canada that normally would not be regulated. The result of having to deal with both types of entities in the legislation currently is a very convoluted set of approval processes for near-banks, and these processes don't seem to be necessary.

We'll see the details in the regulations ultimately, but it appears that in this area Bill C-37 does help to streamline the system by focusing the rules on real foreign banks wishing to enter this country.

While we do think Bill C-37 does take positive steps, there are some areas where we feel some targeted changes would improve the bill. For example, in clause 31 of the bill, the government is proposing to extend the current disclosure requirements to deposit-type registered plans such as RRSPs.

We understand what the government is trying to achieve here, but we think the actual drafting of the bill is simply unworkable. The bill doesn't adequately distinguish among registered plans, deposit accounts, and deposit products; it doesn't take adequately into account that registered plans often contain products that are not federally regulated or are offered by institutions that are not federally regulated. In short, we think the current drafting of the bill could actually frustrate the government's policy intents and potentially confuse consumers.

We think this is a provision that needs further tinkering. It's a very technical area, and we're offering to work with the government to explore ways to address the technical issues.

A further and in effect final point we would like to raise this morning concerns bank holding companies. As you know, in the 2001 round of reform of the Bank Act—the regular five-year review—banks were allowed to structure themselves as holding companies, as banks in most other countries around the world are allowed to do. The option held out the promise of greater flexibility and a more targeted and streamlined regulatory system.

Unfortunately, while the power to create bank holding companies was provided in 2001, other rules in the Bank Act make it very difficult for banks to actually convert to this structure. In our view, it adds or could add regulation rather than streamlining it. The practical result is that six years after the 2001 reforms, the bank holding company model is still not an option that banks can use.

In effect, what the rules say is this: a bank can enter into such transactions as offering loans or guarantees to its downstream subsidiaries without restrictions, but if those same subsidiaries become sister companies of the bank under a holding company, then restrictions on transactions between the bank and its sister companies now must be imposed, even though no new risk has entered the system.

We are working with the government and with the superintendent's office to sort through these issues, but in our view more work is need. Given this committee's interest in the efficient operations of the financial sector, we would encourage the committee to urge the government to take steps to ensure that the holding company model is in fact a workable option for the industry.

Chair and members of the committee, in conclusion, let me thank you again very much, on behalf of my colleagues, for the opportunity to provide our thoughts and to engage in some discussion with you.

To sum up, while we have some improvements to the bill that we would encourage you to consider, we feel that this is a technical bill that makes useful improvements for the benefit of consumers and the efficiency of the system. The goal of making the regulatory system as efficient and effective as possible and of making the system as supportive of innovation and international competitiveness as possible is an ongoing task. Bill C-37 is an important step in this process, but of course we look forward to continuing to work with the government and with members of this committee on these important goals.

That concludes my remarks. We look forward to discussion with you.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Bill C-37 is consistent with the policy commitment of Canada's new government to ensure that our country's regulatory framework remains responsive to domestic and global developments. It also maintains the regular practice of five-year reviews of the financial institution statutes.

This bill has three basic objectives.

First, to promote the interests of consumers. These proposals will do that in a number of ways. One way this bill will benefit consumers is by improving the disclosure regime so that consumers have the information they need to make the best decisions in light of the choices made available to the them.

For example, with the increasing popularity of online banking, Bill C-37 proposes to harmonize online and in-branch disclosure requirements. This will allow consumers to compare products more easily and ensure that adequate disclosure is provided to customers conducting transactions online.

Another way the bill will benefit consumers and small businesses is by helping reduce hold times imposed on cheques. Instead of using this regulatory power, the government has finalized an agreement with the banking industry to voluntarily reduce the maximum hold period for cheques from ten days to seven days. Once electronic cheque imaging is fully implemented, that hold period will be reduced even further to four days.

The second objective of the bill is to increase legislative and regulatory efficiency in our banking system. One such example is to simplify the foreign bank entry framework. This will be especially helpful to the so-called “near banks”. These are foreign entities that are not regulated as banks in their home jurisdictions but that provide banking-type services. A car manufacturer, for example, currently has to obtain ministerial approval before being able to provide loans or make leasing arrangements, and this will no longer be required.

The measures in the bill will simplify the entry framework, reduce the regulatory burden, and provide for an environment that is conducive to increased competition.

Another way in which this bill will increase efficiency in our banking system is to improve the regulatory approval regime. This will ensure that transactions are dealt with faster and more efficiently.

Bill C-37 also responds to changes in the marketplace. Mandatory insurance for high-loan-to-value or high-ratio mortgages was introduced over 30 years ago, and that was as a safety measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers. The marketplace has of course changed over time and the mortgage insurance restriction is no longer required to the same extent. So this bill proposes to raise the loan-to-value ratio requiring mortgage insurance from 75% to 80%.

This will lower the mortgage down payment consumers are required to make before the law requires the purchase of mortgage insurance and will create an opportunity for mortgage cost savings.

So a family purchasing a $200,000 home with a down payment of 20% could save approximately $1,600. This is a significant amount, of course, especially for first-time home buyers.

The third objective of Bill C-37 is to provide the financial institutions framework with the ability to adapt to new developments in the industry. Amendments in Bill C-37 reflect the fact that banking services must remain up to date with new technology. The proposal to implement electronic cheque imaging is one such example.

Given the development of new technology, the old paper-based process of clearing cheques is too labour-intensive, time-consuming, and costly. So electronic cheque imaging will result in significant efficiency gains, saving time and resources currently dedicated to the movement of cheques. This amendment is complementary to the proposal to reduce cheque hold times that I mentioned earlier.

Another important change is the proposal to allow financial institutions to add more foreign directors to their boards. This amendment will enhance the ability of our financial institutions to pursue global business opportunities, allow for even greater benefits from the expertise and experience of foreign talent while maintaining a majority of Canadian directors on their boards.

As I've said before this committee on other occasions, I'm very proud of the performance of our financial institutions internationally, including in China, where four of our chartered banks are active and two of our largest insurers, Manulife and Sun Life, are active as well. This is something to be encouraged and applauded in terms of our financial institutions taking leadership roles outside of Canada, helping to promote trade for Canadian businesses, which can follow in the path, as they often do, of the large Canadian financial institutions.

In summing up, the amendments proposed in Bill C-37 will enhance the framework governing Canada's financial institutions.

Thank you, Chair.

I invite questions that committee members may have. And officials are here, of course, with me from the Department of Finance.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Mr. Chair.

I apologize to you, Chair, and to the committee members for being late. I was in a cabinet committee meeting that ran a little late.

I thank you for the opportunity to be here today.

I appreciate this opportunity to appear before your Committee today to discuss Bill C-37, An Act to amend the law governing financial institutions and provide for related and consequential matters.

As you know, in November we introduced Advantage Canada, which is the long-term economic plan for our country. We introduced this along with the economic and fiscal update. Advantage Canada is a long-term economic plan designed to make Canada a world leader, both today and for future generations. It will help make the Canadian economy even stronger and improve our quality of life through competitive economic advantages. A strong economy must be supported by a financial system founded on competition, which instills confidence and efficiently provides the financial services that families, individuals, and businesses need in Canada.

Canada does have a strong and sound financial system that has served Canadians well. It provides about 700,000 highly skilled, knowledge-based, well-paying jobs.

In the coming years, however, Canada's financial system will have to adapt to the evolving needs of households and businesses.

It will also need to embrace the increasing use of technology in the delivery of financial services.

That would be achieved through a flexible regulatory framework founded on sound principles. That is where Bill C-37 comes in. The bill does not seek to overhaul the financial institution statutes that by and large work well. Rather, the bill introduces adjustments to the framework, fine-tuning to further promote competition disclosure, regulatory efficiency, and innovation. The results will benefit families, individuals, small businesses, and the economy overall.

Before I outline the measures in the bill, I want to underline the fact that the proposed changes I'm referring to today are based on extensive consultations. These changes were then outlined in a white paper, which was issued last June, entitled “2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”.

Catchy title, isn't it?

[The Vice-Chair, Liberal, Massimo Pacetti]

Good morning.

We're here pursuant to the order of reference of Thursday, December 7, 2006, Bill C-37, an act to amend the law governing financial institutions and to provide for related and consequential matters.

Mr. Flaherty, the committee met last week, and we decided to ask you to please try to keep your opening comments to between 10 and 15 minutes, so that the members can engage in questions. If need be, we'll try to provide you a bit of time at the end.

The only problem is that we have to be done by 11 o'clock, because we have to go to another room then.

If you're ready to start, thank you.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Mr. Chairman, I would just like to point out to the committee, with respect to the Bank Act, that we do not have until April to do this work. April is when royal assent has to be given to changes that we recommend to the Bank Act, which the House votes on. So we have to report back to the House with our recommendations on Bill C-37 well before that. In fact, we have to do it by February 22.

With all of the extra time that has been spent on the happy game of Conservative-bashing on income trusts, we have lost a great deal of time. So we have to get that Bank Act review out. A lot of financial institutions have been waiting quite a while for this, and we simply can't hold it up again. It was already held up six months. I think it would be extremely irresponsible. So whatever we do, let's do our job for the country, and then we can play some political games after that, if we have time.

[The Chair, Conservative, Brian Pallister]

Order.

Committee members, allow me to review quickly the work schedule for committee members and their staff.

First of all, in terms of orders of business for the coming week, next Tuesday, February 6, we will be dealing with a draft report on income trusts. I'm going to endeavour to get the room fifteen minutes earlier so that you can come in and read the draft prior to beginning discussion, just to expedite the process of dealing with the draft report.

Next Thursday, February 8, we have private members' bills. We have Bill C-294, Bill C-253, and Bill C-305 to deal with at that point in time.

Following that, very likely beginning on Tuesday, February 13, we will be dealing with Bill C-37, the Bank Act review, which should encompass a fair bit of the committee's time over the next while. I would suggest to you, committee members, that you forward names of witnesses to the clerk's office. Begin that process now and we'll give you some deadlines later on, but give some thought to Bill C-37, the Bank Act review, as soon as you wish.

At this juncture, Mr. McCallum, I believe you have a motion that you'd like to bring forward. I'd like for us to deal with it now if we could.

[The Chair, Conservative, Brian Pallister]

I want to be clear on the wording before we have a discussion on the amendment, so we will just get clarification on the wording so we know what we're debating here.

While we have this little interlude, I would remind members of the work ahead of us in this committee. We have several private members' bills, and we have several motions. We also have BillS-5, an act to implement conventions and protocols concluded between Canada and Finland, Mexico and Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. We also have BillC-37, an act to amend the law governing financial institutions and to review the Bank Act, which is a rather onerous responsibility before the committee.

With that in mind, I want to assure committee members that if we do proceed along these lines as proposed by this amendment, it will be my intention not to till the same field twice. If we are going to call an extensive number of witnesses to debate the income trust issue and we're going to devote the committee's time to this task now, I don't anticipate calling exactly the same people back a second time for any reason.

If committee members would like to make a case for another approach, I invite them to do that at another time, but I assure you that we have too much on our plate to be going through this exercise twice.

Now, I want to hear the wording of the amendment as proposed by Mr. Dykstra. I will let the clerk read that to the committee.

Budget Implementation Act, 2006, No. 2

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, I am very pleased to speak to Bill C-28, an act to implement certain provisions of the budget tabled in Parliament on May 2, 2006. As we all know, the Bloc Québécois supported that budget.

I am especially pleased to speak to Bill C-28 here today because several measures in this bill are quite similar to measures that the Bloc Québécois has been proposing for many years. Consider, for example, the tax credit for public transit passes. I seem to recall that one of our colleagues already proposed in this House a private member's bill that was very similar. Another example is the textbook tax credit. For some time, the Bloc Québécois has been calling for the elimination of taxes on all products and services related to books. This has been done in Quebec. This encourages access, not just to textbooks, but to all literature, regardless of target audience, since we must start somewhere.

Finally, the tax break for microbreweries—in fact, the government has extended it to all breweries—is completely in line with what the Bloc Québécois has been proposing. The Standing Committee on Finance also looked at this issue several times. Bill C-28 finally contains this provision, which we have wanted for quite a while now.

There are also provisions to help the next generation. This has been a major concern of the Bloc for quite some time. We even organized a symposium together with the Union des producteurs agricoles on the next generation of farmers. It is important, therefore, to have provisions in the act that facilitate the intergenerational transfer of businesses, although I will have a chance later, of course, to say that much more could have been done in this regard and in other regards as well.

In addition, there are provisions to help apprentices and tradespeople acquire the tools they need. Other provisions help out family fishing firms. Finally, a whole series of tax measures help to strengthen small business, which is the real economic backbone of Quebec. The Bloc Québécois will obviously, therefore, support these measures.

In general, much still needs to be done, but we have a few steps here in the right direction and the Bloc Québécois will vote in favour of Bill C-28.

I would like, first, to describe the bill because it contains a host of provisions. It is important for the people listening to us to understand the full scope of what is in this bill. Basically, there are five main groups of provisions.

The first is a whole series of tax provisions for individuals. Here we find the tax credit for apprentices and tradespeople, an increase in the non-refundable credit for people receiving a pension, the establishment of a public transit tax credit, and an increase in the refundable credit for medical expenses. This first group is aimed, therefore, at individuals.

The second group extends benefits already given to farms to fishing firms as well. The fishing sector is in serious difficulty at the present time. These benefits are therefore very important to us, especially in regions such as the Gaspé, the Lower St. Lawrence and the North Shore. So as I was saying, the second group extends certain provisions previously available to farms to fishing firms as well.

There are various measures dealing with capital gains, the transfer of a business to other members of the family and agribusiness tax benefits.

A third main group of provisions in Bill C-28 has to do with various tax measures for businesses including, among others, the abolition of the surtax on the revenue of Canadian corporations and an increase in the amount a small or medium-sized business can earn if it wants to benefit from a tax credit.

A fourth series of legislative changes pertains to lowering the tax rate on capital gains of Canadian banks.

The last series of measures aims to lower the excise tax on the first 75,000 hectolitres of beer brewed in Canada in order to stimulate the growth of this sector and microbreweries in particular. This is an emerging sector that has had significant growth in recent years.

This sector has been growing in the regions also. For example, in the Joliette region, the Alchimiste microbrewery was experiencing difficulties because taxation by some of our European and American trading partners benefited their microbreweries. In the Canadian tax system, no distinction is made between a major brewery—such as Molson or Labatt—and microbreweries.

We will see that the minister has somewhat changed his tune from his initial announcement. It is interesting to note. We will all have the opportunity to comment on the reasons that led the minister to apply this measure not just to microbreweries but to breweries in general, as requested by the Standing Committee on Finance. The lower excise tax will also apply to major breweries as well.

I would now like to come back to the first series of measures: tax measures for individuals. The first measure for individuals introduced in this notice of ways and means and in Bill C-28 implements a mechanism allowing apprentices and tradespeople to deduct expenses for certain tools. Deductible expenses may not exceed $1,000 or 5% of the apprentice's annual income, whichever is greater. It also allows tradespeople to deduct up to $500 of the cost of certain tools.

Next, the bill implements indexation of the tax credit for apprentices and tradespeople. The maximum non-refundable credit for some people receiving pension income will double from $1,000 to $2,000. It also creates a $1,000 non-refundable tax credit for employment income starting at $250 for 2006 and increasing to $1,000 in 2007.

It creates a non-refundable tax credit for public transit. To be eligible for the credit, taxpayers must supply a receipt or proof of purchase of a long-term public transit pass. Obviously, this does not apply to daily or weekly passes because we want to promote the use of public transit and relieve congestion on our roads. We could also have talked about meeting the Kyoto protocol targets or helping meet them, but because that word has become taboo for this government, we thought it best not to mention it.

This bill also creates a tax credit for textbooks of $65 per month of full-time study and $20 per month of part-time study. The refundable medical expense supplement will be increased from $767 to $1,000 and continue to be indexed to the cost of living. In addition, the bill will reduce the threshold for deducting medical expenses to the 2005 level. It will then continue to be indexed.

This first series of measures for individuals, some of which are better than others, aligns with what the Bloc Québécois has been proposing over the past few years.

The second group of provisions extends the same tax benefits currently enjoyed by fishing businesses to agricultural businesses as well. Thus, tax measures such as forward averaging when transferring a family business that includes agricultural capital property will also apply to fishing businesses.

The third group of provisions has to do with corporate taxation. The business limit under which Canadian and Quebec small and medium-sized businesses can seek a reduced income tax rate is being increased from $300,000 to $400,000. This will reduce the tax rate for small and medium-sized business from 12% in 2007 to 11.5% in 2008 and 11% in 2009. This measure will allow small and medium sized businesses to generate the liquidity they need for future investments.

This bill will eliminate the 1.2% surtax targeted for Canadian controlled private corporations in 2008, with a subsequent reduction of 0.5% planned for corporate income tax in 2009 and 1% in 2010. As a result, this will translate into a corporate income tax reduction from 22.2% in 2006 to 19% in 2010. These measures should encourage investments, although a generalized tax reduction such as this does not automatically lead to increased investment, as we have learned in recent years.

The corporate tax rate was some 28% in the early 1990s, but has fallen to 22.2%. Despite that, the rate of investment last year was not as high as expected, and Canada has moved down in the ranks in terms of productivity. We are currently ranked 15th or 16th, although we ranked much higher just a few years ago.

These measures are necessary, but are not enough to ensure that the Canadian and Quebec economies regain their former productivity. This is important, as we all know, especially considering our aging population and the knowledge-based economy.

The fourth group of provisions amends the tax rate for banking institutions. A single tax rate will now be applied on the taxable capital surplus of financial institutions, and the threshold at which financial institutions start paying tax is being increased. Previously, banks were taxed according to a sliding scale. For example, corporations did not have to pay tax on surplus capital of $0 to $2 million. Between $2 million and $300 million, the tax rate was 1% and for higher amounts it was 1.25%.

The new legislation amends the tax scale whereby a 1.25% rate will apply when taxable capital exceeds $1 billion. In future, we will have a uniform tax rate at a tax level that is quite interesting, especially for small and medium-sized banks, as I was saying.

The last group of provisions has to do with reducing excise duties on beer brewed in volumes up to 75,000 hectolitres. This new measure amends the Excise Tax Act and the Excise Act, 2001, by implementing a sliding scale based on the number of hectolitres brewed.

As I mentioned earlier, prior to this amendment all breweries, no matter the amount brewed, paid a fixed duty according to the volume of beer brewed. This new measure is favourable to microbreweries. In addition, and this is rather surprising, major breweries will also benefit from the reduction in excise tax payable on the first 75,000 hectolitres produced. I am almost certain that some of these major breweries exerted pressure on the government to have this measure apply across the board. Nevertheless, what is important to us it that it will benefit microbreweries and allow them to compete with American and European microbreweries in particular.

I would now like to comment on our position on these provisions. With regard to the first group, concerning taxation of individuals, as I mentioned, we have been calling for a tax credit for tradespeople's tools for some time. These workers often have to pay for their tools out of their own pockets even if employed by a garage or shop. It is quite a significant expense for them. In our opinion, this tax credit will be a tremendous help, particularly for apprentices who not only have to upgrade their tools but also purchase a basic set of tools.

The second measure pertains to public transit. I mentioned that a non-refundable tax credit is being proposed by the government. I have two comments in this regard. We would have preferred a refundable credit because quite often, people who use the bus, subway or public transit are not well off, do not pay income tax and thus cannot benefit from this measure. Consequently, we feel they could have gone one step further by providing a refundable tax credit.

Naturally, we do not believe that the overall number of users of public transit in Canada and Quebec will increase solely because of this measure. We need much more, particularly in light of the fiscal imbalance, to ensure that municipalities and transit commissions to have the necessary means to provide good service at affordable prices. Once again we support this measure in view of attaining the Kyoto targets.

What about the elderly and other segments of the population such as individuals receiving disability pensions, for whom these benefits represent their main source of income?

We in the Bloc Québécois have always maintained that older people should receive special treatment. Obviously, we would like to go much farther than that. Specifically, we are calling on the government, as we have done for a number of years, to ensure that all older people who qualify for the guaranteed income supplement receive it. A few years ago, we noticed that tens of thousands of people who were entitled to the supplement were not claiming it, because they did not know the program existed. Unfortunately, this is still true. At the time, Marcel Gagnon, the member for Champlain, travelled across Quebec. We were able to locate many people who did not think they qualified for this program. Unfortunately, many people still are unaware that they qualify.

As for the tax credit for textbooks, I repeat that we are not opposed to this measure, but we would have thought a refundable tax credit would be preferable, because students, especially full-time students, usually work only during the summer and therefore do not pay income tax, because they do not have sufficient income. They will therefore not benefit from this measure. I know that students can carry this credit forward, but they are purchasing books now. It therefore would have been preferable to have it now.

I know that the Minister of Finance was interested in the suggestion my colleague from Jeanne-Le Ber made at a meeting of the Standing Committee on Finance to look into this. In my view, it should go further.

As well, we are calling for the abolition of the GST on books. Once again, this is vital for us, especially when we are talking about a knowledge-based economy.

Now, if we look into the second main group of provisions—new measures for fishing businesses—as I have mentioned, we are in favour of the new measure aimed at introducing the same types of forward tax averaging in the fishing industry as for farm businesses. However, we think that this benefit could have been more widely accessible. The measure proposed by the government applies to transfers between people in the same family. We think that the government could have gone further and extended the measure to intergenerational transfers outside the family.

As to the third series of provisions, corporate taxation, as I was saying, we fully support increasing the amount of revenue that would allow small and medium-sized businesses to have access to a lower tax rate. In fact, that was part of our 2000 election platform. The Bloc Québécois will stand up for measures that strengthen our SMEs, especially in Quebec, where the economy is made up of small and medium enterprises.

We are aware that competition exists among different countries and jurisdictions with respect to taxation. We must therefore also reduce the corporate surtax.

However, in the case of oil, there is no danger of relocation because companies cannot transfer the oil supply to China or Mexico. Therefore, we think it makes sense to maintain a surtax for oil companies and to abolish rapid amortization in the oil sands, where all investments can be written off in one year, instead of 25% per year, as is the case for conventional oil and gas. We think that is abusive.

I mentioned the fourth group of provisions, which has to do with taxation of banks. Obviously, the proposed measure benefits all banks, but it could also have an impact on the smaller banking institutions. I would like to remind the House that, as we have said in relation to Bill C-37, we have been trying for many years to increase competition in the banking sector, which is extremely concentrated. Five big banks control nearly all of the activity and do not really offer consumers any choice. The proposed measure will most likely have a positive impact in this respect. Let us hope it does.

I would like to conclude by saying that we are very pleased with the measure to reduce the excise tax for microbreweries. I am certain that the entire microbrewery sector, particularly in Quebec, will benefit from this new measure. Might I remind the House that we have been asking—

Bank Act

[Alexa McDonough, NDP, Halifax, NS]

Mr. Speaker, I welcome the opportunity to ask a couple of questions of the member for Esquimalt—Juan de Fuca, who has spent 15 minutes outlining a multi-point plan on how Canada should change its focus in Afghanistan, away from what his party got us into in the first place in the aggressive search and kill counter-insurgency mission in Kandahar.

Next, unbelievably, his party gave the Conservative government enough votes to ram through an extension on a mission with nine months still to go, adding two more years to that mission. Those members did this without a proper evaluation of what was happening with the mission, without an opportunity for us to even begin to consult Canadians, let alone have a fully informed, thorough, responsible debate before being pushed into a vote on very short notice.

Mr. Speaker, I assume that you will be as liberal in the interpretation of the rules of relevancy as your predecessor in the chair this afternoon. We are here this afternoon to deal with Bill C-37, An Act to amend the law governing financial institutions and to provide for related and consequential matters, but since the member for Esquimalt—Juan de Fuca was given the opportunity to speak for 15 uninterrupted minutes about his views on Afghanistan, I assume it is in order for me to ask him a question on this extremely important topic.

It took me a minute to realize that we were debating Afghanistan, so I did not hear in full the first couple of points in his five point plan on how to get us out of the Kandahar quagmire and finally address the horror of what is happening to our troops in the current flawed mission.

I want to ask him about a subject that came up in the foreign affairs committee yesterday of which he will be aware, I am sure. The Deputy Commissioner of the RCMP confirmed and informed the committee that 34,700 Iraqi police had been trained by Canadian RCMP officers over the last couple of years. This raised in the minds of everyone at committee, I think, the question of how many Afghan police, particularly in Kandahar, had been trained over the same period, because of course we are not supposed to be in Iraq although it is a very important thing for there to be training for the Iraqi police.

Given the fact that our commitment is supposed to be dealing with the insecurity in Kandahar, and given that many people feel that problems with the under-policing, the under-qualified policing and the insufficient numbers of police are at least as much or perhaps more of a threat to the security of the citizens of Kandahar, the question of interest, of course, is how many have been trained by Canada in Kandahar? I have to say that I almost fell off my chair when the Deputy Commissioner of the RCMP confirmed there had been 150.

I want to invite the member to address this question. Where does the issue of training the Afghani police fit into the member's five point plan for getting out of the Kandahar quagmire?

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I appreciate the answers.

With respect to alternative places to do one's banking or pay one's taxes, there are many communities where there are no bank branches left. In many, many parts of this country there is no such thing as a bank branch on every corner.

You probably don't want the rant I gave in the House today in the context of Bill C-37. Again I will say, Winnipeg North has lost virtually all of its bank branches in ten years. The options are payday lenders, and I don't think you're suggesting we go there. It's not that simple in many, many communities, and Service Canada doesn't have the expertise to do that.

The service is not designed for communities that are not wealthy suburban areas, where they can get to a bank, and they have cars and they have computers. We're talking about ordinary communities with single-parent families and senior citizens who don't have a lot of resources but need some personal contact. They need somewhere to go when the problem is there...another day when they might not have someone to look after their kid or when they're squeezing it in between appointments.

So there still is that problem that we haven't addressed. I really fear for what this means for the spirit and soul of a community when we cut off everything that means anything in terms of services.

On top of that, I still have constituents calling. They try this number out. They have a simple question. They get a number. They press here, they press there, and they can't get through. Then they call me and say, “I can't get through.”

I said to Michel last time that what we're ending up with in terms of Revenue Canada is what happened with Immigration: government offloads. People don't know where to go, so where do they go? They go to their MP. So we have to then provide direct services because there's no one in government available. In the case of Immigration, in the space of six years we went from a 40% caseload to a 90% caseload, and it's all related to government offloading and outsourcing and the devolution....

I wonder if there's a plan to deal with this problem.