Mr. Chairman and committee members, I'd like to thank you for this opportunity to appear before the committee regarding Bill C-60 and to explain why the credit union system opposes the tax increase on credit unions contained in the bill.
We oppose the tax increase because it disregards the nature of credit unions and the vital contribution that credit unions make to providing Canadians with service, choice, and competition in the Canadian financial services market.
Credit unions are different from commercial banks because they are cooperative financial institutions, and this is fundamental. A commercial bank is owned by its shareholders, and most customers of a bank are not shareholders of the bank. A credit union is owned by its members who are its customers. More than five million Canadians outside of Quebec are credit union members. When the membership of the caisses populaires in Quebec is included, more than 11 million Canadians are members of cooperative financial institutions.
A credit union serves the needs of its members. Commercial banks aim to maximize profits for their shareholders. Credit unions aim to maximize service for their members. The cooperative business model is a service maximization model. It is through a commitment to member service that credit unions bring investment and innovation to local communities across Canada.
Both commercial banks and credit unions need capital in order to grow. Commercial banks can source their capital from public capital markets. Credit unions must source their capital from their members and from retained earnings. The members are the owners, so the members supply the capital directly or through the earnings retained by the credit union. A credit union typically acquires in the range of between 75% and 80% of its capital from retained earnings. The income tax increase on credit unions, therefore, is growth limiting. It deprives credit unions of income that might otherwise be used to support the growth of the credit union by building its capital base. The credit union will, therefore, have less capacity to make loans to small business, fund community economic development, and meet member needs.
Credit unions are relatively small financial institutions that offer a full range of financial services to their members in over 1,760 physical branch locations across Canada. In hundreds of these communities, credit unions and caisses populaires are the only financial institutions that are physically present in that community, employing local residents and serving the needs of local small businesses.
Credit unions are 100% Canadian owned. They serve the financial needs of millions of individual Canadians and they employ over 27,000 Canadians in communities across Canada.
Credit unions are the most important source of competition to the large commercial banks in the overly concentrated Canadian financial services industry. We note comments that seek to defend the tax increase as creating a level playing field. This is a narrow technocratic view. The tax increase disregards the nature of cooperative financial institutions. It disregards the federal government's desire to support small business in local communities and it disregards the federal government's policy objective, stated elsewhere in the budget, of creating more competition in the Canadian financial services sector. A lower tax rate paid by credit unions is good public policy because a lower tax rate for credit unions promotes competition in the Canadian financial services marketplace.
The six large Canadian commercial banks made $30 billion in profit in 2012. The entire Canadian credit union system made less than 3% of that amount in that year, yet the federal government is increasing the income tax of credit unions. This simply does not make sense.
Mr. Chairman, those are my remarks.