Finance Committee on Nov. 19th, 2013

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Scholten.

We now go to Mr. Phillips.

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

Mr. Chairman, and members of the committee, thank you for this opportunity to appear before you today.

I've been asked to discuss how credit unions in Canada help to ensure prosperous and secure rural communities. I should first mention that my organization, the Credit Union Central of Canada, is a national trade association for the 332 credit unions and caisses populaires that operate outside Quebec.

Credit unions are part of Canada's cooperative movement, which they share with Caisse Desjardins and with many other cooperative organizations across Canada. Cooperatives are an integral part of Canada's economy and have roots in Canadian history that extend back well over 110 years.

Now for a brief story. Moonbeam is a community of about 1,000 individuals situated in northern Ontario. Several months ago the residents of Moonbeam learned that the operator of the town's grocery store was proposing to cease operations. The town responded to this potential loss of service by establishing a food cooperative, and was assisted in doing so by the caisse populaire of Kapuskasing, which has a branch office in the town.

This story illustrates how cooperatives and cooperative financial institutions work together to build and sustain rural communities. Cooperatives are part of these communities and credit unions are community-based financial institutions.

Cooperatives and credit unions are consumer-owned, unlike banks, which are shareholder-owned. At credit unions the customers are local, the management and employees are local, governance is local, and decision-making is local.

Credit unions support prosperous rural communities through their presence and active involvement in these communities. Physical presence is important and credit unions operate from more than 1,760 locations across Canada and most of these are in smaller communities. This is a large number of locations given the size of the credit union system. By way of contrast, the Royal Bank of Canada, which is more than four times larger than the credit union system, operates from 300 fewer branch locations.

Rural or remote communities do not need to be underserviced communities. In over 360 rural centres a credit union or caisse populaire is the only financial institution physically present in that community. This number does not include the hundreds of communities in Quebec where Caisse Desjardins is the only financial institution branch.

Credit unions focus on strengthening the communities they serve and they put service ahead of profit.

The ability of cooperative financial institutions to continue to contribute to the prosperity of rural communities is dependent upon the existence of government policies that support, or at least do not hinder, this activity.

We are supportive of the federal government's initiative to apply a small business lens to its policies and priorities, but we feel that this needs to go further and that the government should also apply a cooperative lens to all of its initiatives.

What would a cooperative lens do?

A cooperative lens would, among other things, consider the fairness of credit union taxation. We regard the recent increase of income tax on credit unions, which we have opposed, as being the application not of a cooperative lens but of a Bay Street lens.

A cooperative lens would consider the fairness of allowing a non-taxed and non-regulated state-owned enterprise such as Farm Credit Canada to compete directly with small cooperative financial institutions in rural communities, and a cooperative lens would carefully consider ways in which government regulation can be implemented in a manner that does not impose an excessive burden of fixed costs on consumer-owned financial institutions.

The Moonbeam story is a happy story, and there are many other happy stories from across Canada where credit unions and caisses populaires have helped to build prosperous and secure rural communities. But the ability of these consumer-owned financial institutions to serve their communities is not a matter to be taken for granted.

For this reason we urge the federal government to apply a cooperative lens to its policies and programs to ensure that credit unions and caisses populaires can continue to fulfill their important role in the Canadian economy as a strong and active presence in rural communities.

Mr. Chairman, those are my comments.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Phillips.

From the Desjardins groups, Mr. Roussel.

[Daniel Roussel, Consulting Director, Senior Vice-President, Cooperation and Corporate Affairs, Desjardins Group]

Good afternoon, Mr. Chair and hon. members of the Standing Committee on Finance. My name is Daniel Roussel and I am the Consulting Director for the Senior Vice-President, Cooperation and Corporate Affairs of the Desjardins Group. We are honoured to give testimony before you today.

The Desjardins Group is much more than a financial institution for rural communities. It is a tool that has enabled those communities to develop over the past century. I would even say that it is a multi-purpose tool because it has supported personal projects, business projects and collective structural projects.

But how does our institution stand out from other financial institutions? As my colleague Mr. Phillips said earlier, like credit unions, the cooperative nature is the strength that enables our institution to meet increasingly diverse needs.

At the beginning of the 20th century, Mr. Desjardins established credit unions and cooperatives, but today, as we enter the 21st century, we realize that the members of our caisses are faced with increasingly complex issues, including the dematerialization of money, the globalization of financial and trade markets, the increase of debt and the development of mobility.

Information technologies have changed both the way we consume goods and the way we communicate. However, the Desjardins Group continues to provide in-person services to members at its more than 1,000 points of service and 43 business financial centres. I would like to point out that, in Quebec, 32% of the Desjardins points of service are in communities with fewer than 2,000 residents, whereas the percentage for banks is only 2%.

Not only does Desjardins provide services locally, but it also focuses on its relationships. The group's caisses, which serve workers' communities of interest and cultural communities regardless of location, show how important this type of community-oriented approach is. According to the current trend, our democratic structure encourages close relationships with members and the participation of members in the group's initiatives.

I think it is important to point out that, without the participation of elected leaders, respect for the distinctiveness of each caisse and a flexible approach adapted to their local reality, Desjardins would not be today the largest cooperative financial group in Canada and the sixth largest in the world. Our leaders, elected from local communities, ensure the caisses become firmly rooted in those communities and promote local services through innovation. For instance, our points of service are increasingly sharing resources and buildings with municipalities, which makes it possible to increase the hours of operation and to keep most transactions traditionally carried out by tellers.

The prosperity of rural communities relies especially on support for innovation. Since a cooperative is a voluntary group of people who want their needs to be met and, as a result, take charge, we feel that this business model is an attractive and viable solution to the prosperity of rural communities, including access to essential services.

We are seeing multi-purpose cooperatives emerge everywhere. They are like a breath of fresh air in a number of devitalized or lower-density communities where they respond to essential and diversified needs. We are also seeing solidarity cooperatives that provide grocery, fuel and even postal services in addition to financial services.

Capital régional et coopératif Desjardins is closely involved in the development of resource regions. First, it injects venture capital into SMEs and cooperatives and offers its local expertise. Second, it promotes the transfer of businesses, which makes it possible to maintain its presence in local communities in order to avoid the outsourcing of jobs.

In 2012, Capital régional et coopératif Desjardins invested a record $237 million in Quebec businesses. We have also used some of that investment for a farm succession fund for young people who wish to buy farms. In addition, the caisses themselves provide an impressive range of services. The caisses also contribute to the community development fund, which enables people to invest in structuring projects in their own communities.

Last year, an amount of $41 million was invested in local projects, community projects.

I could also talk about Desjardins' educational role. It is fair to say that, over time, Desjardins and its leaders have become a popular university for financial literacy.

I would like to wrap up by talking about services. Our company employs 45,000 people across Canada and provides services to Aboriginal communities as well. We could also talk about our solidarity-based financing for people who are not eligible for financial services.

[The Chair, Conservative, James Rajotte]

Okay.

Mr. Roussel, thank you for your presentation.

Next we'll have Mr. Woodside, please, from the Federation of Canadian Municipalities.

[Brad Woodside, First Vice-President, Mayor of the City of Fredericton, Federation of Canadian Municipalities]

Thank you, Mr. Chair.

Mr. Chairman, I am pleased to be here today to share the views of some 2,000 Canadian municipalities on the next federal budget.

I understand that we have about five minutes, so I'll cover the highlights of our recommendations and leave a copy of my remarks with you. My comments today will be on issues facing all municipalities in Canada. I will highlight the particular needs of our rural communities.

Let me start by acknowledging that Budget 2013 was good for Canada's cities and communities. The federal commitments to local infrastructure were the largest and longest ever made by the Government of Canada. This decade-long plan will deliver some $50 billion in new funding to help repair, maintain, and replace municipal infrastructure.

The highlight was indexing the permanent gas tax fund against inflation, which will add another $9 billion over 20 years.

There was also good news on housing: the five-year renewal of two key federal housing programs and the commitment to follow Housing First principles in the homelessness partnering strategy, with a role for FCM.

All this happened because the key partners, including the Federation of Canadian Municipalities, worked together. Now we need to see what remains to be done and keep that work going.

In any Canadian community you'll see problems related to infrastructure, housing, public safety, and the environment. In rural and northern Canada you'll see communities fighting for their economic survival. Today we are focusing on two essential issues that need action now.

First, the Building Canada fund must meet the needs of cities and communities. We need to know that a fair and predictable share of the fund will be invested in local streets, bridges, water systems, and public transit. Our rural communities also need to know that they'll be able to access the fund in an equitable way through a dedicated small communities component. Municipalities, through FCM, must be involved in determining how that fund is invested, and any plan must include clear national objectives, with reporting mechanisms to ensure that every dollar delivers value for taxpayers.

Second, in housing we are pleased that the federal government accepts that it has a role in housing and we welcome the renewal of the two new expiring housing programs.

Last spring, Mr. Chairman, we applauded the government's budget commitment to support Housing First and other proven models of fighting homelessness. But without action now, recent progress will be lost. The combination of high real estate prices, a lack of rental construction, and expiring federal funding are threatening to push many Canadians deeper into debt or out of the housing market entirely.

Despite the recent renewal of some programs, we are still looking at the expiry of federal funding for social programming worth $1.7 billion a year. The biggest drop, $500 million a year, is coming between 2014 and 2019.

There are other housing issues that affect Canadians, chiefly finding an affordable home to buy or rent. Many Canadians carry record levels of mortgage debt, and a growing number are priced out of the housing market. For rural communities, it means meeting the housing needs of seniors who want to age in place, having the housing we need to attract and retain workers, and keeping housing costs manageable when our economy is booming. As more Canadians look for alternatives, the rental market cannot keep up.

Finally, rising housing prices threaten the broader economy, potentially forming bubbles that are vulnerable to collapse. We have two recommendations on housing, Mr. Chairman, for you and the committee: that the Government of Canada first follow up on the commitments in Budget 2013 with a clear plan to work with FCM to implement Housing First programs and other proven models for getting homeless people into permanent shelter; second, that it develop a long-term plan to close the gaps in the housing system, reduce the economy's vulnerability to housing market distortions, and protect Canada's 600,000 social housing units as current federal investments expire.

The only way to solve these and other problems facing our communities rural and urban and our country is to work together, as we have in the past. The Federation of Canadian Municipalities and its members look forward to working with the Government of Canada to help build Canada's future.

Mr. Chairman, thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Woodside, for your presentation.

We'll now hear from the Saskatchewan Association of Rural Municipalities, please.

[David Marit, President, Saskatchewan Association of Rural Municipalities]

Thank you, Mr. Chairman. Once again we thank you and the committee for asking us to appear in front of the finance committee.

I'll begin my remarks today with a summary of the current and future challenges facing rural Saskatchewan, the issues that are of the greatest importance to SARM, issues that deal with infrastructure, the quality of life in rural communities, and agriculture.

The first recommendation put forth in our written submission to the committee focuses on the access of reliable and well-designed road and bridge infrastructure, which industries depend on to allow them to efficiently reach their suppliers and to access markets. In order to ensure quality infrastructure, SARM recommends the following.

The criteria for the new Building Canada plan programs need to include a small communities component, with population thresholds that are lower than those employed in past funding programs, such as the Building Canada fund and the community component. Lower population thresholds will better represent the realities of small rural communities and ensure that they are not competing with larger municipalities for the same funds. A portion of the infrastructure funding that is delivered through these programs should be earmarked solely for rural communities, so that rural projects are not competing with cities and towns for the same funding package.

SARM also recommends that the federal government invest through Western Economic Diversification in the northeast quadrant bridge project, a pilot of non-traditional bridge design—a lower-cost bridge design that will benefit municipalities and in turn industries all across this country.

The P3 Canada program needs to give more consideration in the eligibility criteria to less densely populated areas in rural Canada, thereby making it easier to access government funding for such essential rural infrastructure projects. SARM believes that rural-based industries, such as oil and gas and potash, would more seriously consider P3 funding if the program earmarked funding for rural-based projects.

SARM continues to stress the need for improved access to adequate high-speed Internet service in rural areas to expand the delivery of education and health care programming and to foster economic development opportunities. Ensuring rural access to broadband should be indicated as a priority to ensure continued economic, healthcare, and educational opportunities in rural Canada.

We are therefore recommending that the existing rules of the 700 MHz broadband auction be modified to ensure that any rural spectrum left unused by a service provider after two years of their acquiring it be susceptible to access by service providers who are indeed willing to bring service to rural Canada. Ensuring rural access to broadband should be indicated as a priority to ensure continued economic, healthcare, and educational opportunities in rural Canada.

SARM also understands that a process will be undertaken next year to determine how the 2,500 MHz and 3,500 MHz broadband widths will be distributed or sold. These are also critical broadband widths providing service to rural Canada, and therefore SARM would like to see the use-it-or-lose-it principle implemented when such a negotiation is undertaken.

A recent statement by Minister of Industry James Moore indicated that beginning in March 2014, the 2,300 MHz and 3,500 MHz spectrum licences will be subject to renewal and that those who have not used the spectrum according to the conditions contained in the licences will lose it. We appreciate this step made by the federal government to enhance rural access to high-speed broadband networks.

SARM would also ask the federal government to assist the Rural Secretariat by ensuring that it has a louder voice within its department and adequate fiscal capacity and staff to effectively advocate the rural voice through all federal government departments.

There are regulatory amendments that the federal government can make that will act as an economic driver in regions across Canada, including rural Saskatchewan. These would include considering amendments to the Species at Risk Act.

SARM is concerned that the implications of the current Species at Risk Act, SARA, could result in stifling the growth and prosperity of Canada's agricultural industry. It is therefore encouraging changes to that legislation.

SARM would like to request that the federal government amend SARA to ensure the cost and benefits of adding species to SARA, ensuring that the legal and financial implications for agricultural producers and the health and safety implications for rural residents are seriously considered; and that normal agricultural activities be made a permanent exception to SARA, to ensure that agriculture producers aren't legally liable for inadvertent incidental take, except in circumstances where the agricultural producer enters into an agreement with SARA to maintain the species at risk habitat in exchange for compensation that is automatically provided and adequate.

In closing, the Saskatchewan Association of Rural Municipalities believes that infrastructure, quality of life in rural communities, and agriculture are the main areas in need of federal support.

Thank you very much for your attendance.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Marit.

We'll now move to Ms. Bolduc, from Solidarité rurale du Québec. You have the floor for five minutes.

[Claire Bolduc, President, Solidarité rurale du Québec]

Thank you, Mr. Chair and members of the committee, for inviting Solidarité rurale du Québec to take part in your consultations.

Solidarité rurale du Québec, or the SRQ, is a coalition of major organizations, national agencies, and local and regional organizations in the province of Quebec. For nearly 23 years, the SRQ has been an advocate for rural populations, promoting the revitalization and development of rural life, towns and communities. We advocate that rural communities have a right to be different, that their differences should be recognized and that, despite those differences, they are entitled to prosperity.

We are so active, in fact, that in 1997, the Government of Quebec asked us to become its advisor on rural issues affecting the entire province. A number of the opinions provided by the SRQ have shaped key policies, including the National Policy on Rurality. In Quebec, this policy is slated for renewal next December, for another 10 years.

The SRQ has always maintained that the development of rural communities cannot be achieved solely through sector-specific policies, such as forestry and farming policies. We believe that rural development hinges on a broad vision of rural life and on an understanding of what rural communities are and how the various realities of rural living make those communities different.

In short, we want a federal policy on rurality. In our view, that is the first step the Canadian government must take if it wants to create the conditions that will foster prosperity throughout the country's rural regions. One of the things a federal policy would do is make it clear that the rules and standards applicable to cities and urban centres do not work for rural regions. The difference between them makes that evident.

It is also important to keep in mind that 95% of Canada's land mass is rural. In Quebec, only 6% of the rural population works in farming. That means that almost 95% of rural residents follow other occupations. So, there is no question that having a comprehensive view of Canada's various rural regions would allow the government to focus and adjust its efforts more effectively.

Some 25% of Quebec's population lives in rural communities but generates 30% of the GDP. It is clear, then, that rural populations are crucial to the prosperity of an entire nation.

The request has already been made, but we are again asking Canada to develop a broad vision that would underlie a federal rural policy that goes beyond mere policies on natural resource development. In developing such a vision, the government could give careful consideration to technologies that are suitable for rural regions, to environmental issues, to manufacturing jobs, to crops and so forth. It is important to view rural communities as places where people live and to develop a real vision for all of rural Canada. Rural communities have multiple functions; not only do they contribute economically, but they are also places where people live and travel. Not to mention, they provide goods and services. And the situation varies greatly from one place to another.

After the initial step of developing a vision, the government must then take a second to ensure prosperity for rural Canada. It must invest in a structure dedicated to building partnerships to focus on rural issues, discuss rural concerns and provide rural support.

The government recently announced the elimination of Canada's Rural Secretariat, and it followed through on that announcement. The secretariat's mandate was, in fact, to build these kinds of partnerships, networks and alliances intended to facilitate discussion and find solutions to major rural problems. We fear this loss of expertise will hurt our capacity to innovate, adapt and compete, even internationally. We want to see a Canadian rural secretariat in place.

The third step we encourage the government to take, in its efforts to ensure rural Canada's prosperity, is to give rural communities the tools they need to foster their development. It is time to fully recognize that our society's economic, social and environmental future depends on citizen engagement, each in their own community.

The examples of Wallace and Moonbeam mentioned earlier are clear evidence of that. Going forward, rather than imposing measures on communities and controlling them, the government should support them and trust them by giving them the right tools. That's what Quebec's National Policy on Rurality does; it gives rural communities the tools and resources they need to foster their development.

We recommend that the Canadian government implement a similar policy that provides similar tools. In 2010, the OECD called Quebec's National Policy on Rurality the most advanced rural development approach in the world.

I want to stress that, short of introducing a number of measures supporting rural life, particularly regarding Internet coverage, the government will be unable to ensure the economic success of these communities under current conditions.

[The Chair, Conservative, James Rajotte]

Thank you very much.

[Claire Bolduc]

In closing, I would like to mention some key considerations for rural regions: tax measures, local education and graduates, workers' funds—which are being cut drastically—Internet coverage and postal service. All of these elements are critical not just to the vitality of rural communities, but also to the prosperity of the country as a whole.

[The Chair, Conservative, James Rajotte]

Thank you kindly for your presentation.

We will now proceed with members' questions, beginning with Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Thank you all for your input.

My first question is for Mr. Roussel of Desjardins Group. I am very interested in the whole issue of venture capital. You described Capital régional et coopératif Desjardins very well. I looked at your brief, and to sum things up, in 2012, some 48,000 jobs were created or retained in Quebec in over 340 businesses, especially in rural areas, totalling an investment of $240 million. That's pretty impressive. I hope the government listens to you carefully.

Right now, a big debate is raging over the elimination of the tax credit for labour-sponsored venture capital funds. That would jeopardize a big chunk of these venture capital investments in Quebec, one of the world leaders in the sector.

In a minute, could you explain a bit more how it works? How is it focused on Quebec's economy in this case? Why could it not be immediately applied to Canada? Why did you mention a model that the rest of the country could copy?

[Daniel Roussel]

Capital régional et coopératif Desjardins is a limited partnership that raises the funds of Quebeckers. More than 110,000 Quebeckers have already acquired a stake and made financial contributions. A portion of the fund qualifies for a 50% tax credit from the Government of Quebec. As a result, the fund is able to invest in local communities, in projects in all of Quebec's resource regions, in SMEs, in sectors such as forestry and in workers' or consumers' cooperatives.

This enables us to identify promising new projects that support regional communities and to create or keep jobs. I think this is critical to the vitality of our resource regions, in particular. It is, indeed, a model that could be applied to the rest of the provinces in Canada.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

The government announced a venture capital action plan spanning 10 years. It is going to invest $400 million, despite refusing an offer of approximately $2 billion over 10 years on the part of labour-sponsored venture capital funds.

Have you already entered into talks with the federal government about the possibility of copying that model?

[Daniel Roussel]

Yes, we have already asked the Government of Canada to look at the model whereby Quebeckers' savings—but, in this case, it would be Canadians' savings—are taken and invested directly in communities. That way, individuals have some influence over their investment. It's a good model to follow if the goal is to continue supporting our businesses, especially small and medium-sized businesses in our local communities.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

How has the federal government responded so far?

[Daniel Roussel]

We've had discussions on the model, but we haven't received a definitive answer on the idea.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

I will now move on to Mr. Phillips.

In your brief, you mentioned Farm Credit Canada and the fact that its mandate had grown so much that it was encroaching on that of credit unions and, I would imagine, on that of Quebec's caisses populaires, as well.

What would you recommend to make Farm Credit Canada's mandate complementary to that of credit unions? The goal is to prevent any competition for the same market share.

[David Phillips]

Yes, that's exactly right. If we look at crown corporations, such as the Business Development Bank of Canada and the Export Development Bank of Canada, their statutes clearly state that they should behave in a manner that is complementary to private sector institutions. In other words, they should behave as partners to private sector institutions.

That is not a feature of the Farm Credit Canada legislation. Our suggestion is that that legislation should be like the legislation that applies to other state-owned enterprises. It should require that the FCC conduct itself in a manner that is complementary to private sector institutions.

Credit unions feel this much more than banks because frequently they are in rural communities; a large portion of their book is agricultural. They are feeling this competition from a non-taxed, non-regulated entity very directly. We look at how FCC has increased its market share considerably over the last few years.

Another request is that they be subjected to a mandate review. They haven't really had their mandate reviewed by a parliamentary committee for many years. We think it's long overdue, and it would be in the context of that review that we would pursue this request for complementarity in its mandate.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I want to quickly pick up on the issue of venture capital under the caisse populaire model.

Have you developed a similar model for the rest of the country, or do you endorse what the caisses populaires are proposing?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[David Phillips]

It's an area of interest, but we're different from Caisse Desjardins. We're much more decentralized, so we are not as active in that field.

Clearly it's something that would be of interest to explore at some point in the future.

[The Chair, Conservative, James Rajotte]

Okay. Merci.

We'll go to Mr. Keddy, please, for his round.