Good morning, Mr. Chair, and members of the committee.
My name is Ron Dau, and I am joined by my colleague, Alicia Swinamer. We are from First West Credit Union, and thank you very much for giving us time with you today.
First West is a financial co-operative with deep roots in British Columbia. Our reason for being has always been to help middle-class and underserved Canadians access competitive financial services for their personal and business needs.
In a recent statement Minister Morneau noted that the key to a healthy middle class and business community is a strong and competitive financial sector. We agree.
However, today credit unions face increasing competitive challenges due in part to the controversial changes made to the way credit unions were taxed following budget 2013.
For 40 years prior, the federal tax system recognized the important differences between co-operatively owned credit unions and shareholder-owned banks by providing a specific deduction to credit unions. This treatment balanced some of the ways in which the tax system favoured large banks. For instance, as co-operatives, credit unions don't issue shares like the banks do. They aren't able to benefit from the generous federal tax incentives like the 50% capital gains exemption to help build the capital that we need to support loan growth.
In 2013, without consultation or conversation, that historic acknowledgement of these critical differences was thrown out.
The elimination of the historic tax treatment for credit unions resulted in a rise in federal taxes for many credit unions. First West estimates that we alone will pay $3.1 million in additional federal taxes during the phase-out period, and roughly $1.8 million every year after 2016.
The federal change also triggered a provincial increase for B.C. credit unions. As such, and in addition to the federal increase, First West estimates it will pay $4.3 million more in taxes during the provincial phase-out period, and an additional $2.5 million in provincial taxes each year thereafter.
Our presence here today comes with an urgent call to action. We ask this committee and government to once again recognize the unique structure, economic impact, and social mandates of credit unions, and to introduce fair taxation for credit unions. This could take the form of a return to the historic pre-budget 2013 tax arrangement for credit unions, or the creation of a fairer, more progressive tax arrangement that recognizes the distinctive nature of credit unions.
Here is why this matters. Where banks can raise capital from the stock market, credit unions rely almost entirely on their retained earnings to grow their capital. Therefore, the more retained earnings a credit union has, the more it can lend to middle-class families, seniors, first nations, technology start-ups, and small businesses.
First West is proud of our legacy of supporting economic and social prosperity in our communities. For more than 70 years we've helped British Columbians realize their dream of home ownership. We've helped small businesses grow and expand to new markets. We've helped farmers buy and grow farms that feed our fellow citizens, and we've stayed in small towns when large financial institutions have pulled out and moved on.
We're an integral part of our communities and their economies. Last year, First West spent more than $221 million in direct and indirect salaries and benefits, employing the equivalent of 2,366 FTE jobs. In total, First West accounted for nearly $300 million of British Columbia's GDP.
To sustain and grow our economic contribution, it is important that credit unions can work within a tax environment that is fair and appropriate. We are not alone in seeing the problems unfair taxation brings for credit unions. Last September the BC Chamber of Commerce testified before the B.C. Select Standing Committee on Finance and Government Services.
It stated that government had placed a welcome emphasis on encouraging small business growth; however, the change in the tax status of credit unions is a measure that works against this by reducing credit unions' ability to invest in communities and small businesses.
Credit unions like First West help local economies and communities with their hands, hearts, and resources. We believe in paying our fair share of taxes. As a leader in small and rural communities, it's important that we share with you the serious consequences posed to economic growth if past budgetary tax decisions are not reconsidered, or if new solutions are not identified.
Thank you, again, for the opportunity to share First West Credit Union's perspective with the committee, and to have early input on the 2017 budget. We look forward to engaging in a conversation with you today.