Official Languages Committee on March 25th, 2014

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Good morning, ladies and gentlemen.

I would like to talk about credit co-operatives. Amendments were made to the tax act in 2013 concerning credit co-operatives. Under those changes, the statutory tax rate paid on 80% of the revenue of credit unions will increase to 28% by 2016.

Furthermore, the use of foreign subsidiaries by the banks—Ms. Bateman, who is an accountant, will surely be interested in this—enables them to lower their effective tax rate by 9% to 12%, something credit co-operatives cannot do because they do not have subsidiaries in tax havens.

The increase in the effective tax rate will have an impact on you. Might it have an impact on your ability to support your local economy? If so, what will that impact be?

[Michaël Béland]

Indeed, it has an impact. I should say that some credit unions have chosen not to engage in tax evasion for ethical reasons. It is important to understand that a credit union generally has a non-shareable reserve. That means that if we sold the credit union tomorrow morning and we closed the books, members would not be sent cheques. The money would stay in the community; it would be returned to the government.

The second reason why we adopted this measure is that we cannot use the markets to get capital. It is the members, through accumulated funds and prudent financial management, who let us build a credit union.

I won't deny that some co-operatives or credit unions have a greater capacity and face various challenges. The fact remains that smaller credit unions are affected.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

How do you explain the government's attitude toward the taxes of credit unions, particularly small credit unions in the francophone communities affected? How do you explain that the government removed the credit available for the credit unions? What is the logic behind that?

[Michaël Béland]

Credit unions and co-operatives do not want preferential treatment. We have never asked for special treatment because we are a co-operative or a credit union. We want to be on equal footing with other businesses. In other words, we want to have equal opportunities.

There are measures that allow us to be on equal footing. The question is: how are those measures understood and perceived. Was the tax credit perceived as being an advantage for the co-operatives? I think there is also a question of education. It is important to understand that it is not necessarily an advantage. It's just that we do not have access to the same market mechanisms for funding.

Instead, I see this as a misunderstanding. Perhaps it is also because some credit unions have grown, such as Desjardins. However, the situation is not the same everywhere, in every region or for all credit unions and co-operatives.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Would there be a way to tailor this measure to minimize the negative consequences on credit unions in some official language minority communities or in disadvantaged areas where the economic dynamic isn't like Alberta's?

[Michaël Béland]

There are institutions like Desjardins or the Credit Union Central of Canada that are a little more advanced in these areas. It would be good to speak to them because they would have more details on this than we do. It would certainly be something to think about.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Are the credit unions you represent taking action in this regard?

[Shawn Murphy]

No. What is happening right now, especially with the credit unions, is that the small credit co-operatives are starting to merge using the co-operative model. They are merging because they are aware that their small size is preventing them from doing the day-to-day work, as a result of the new regulations and new taxes.

We are also seeing with credit unions that a lot of groups are merging to expand their network and increase their capacity. Here, too, this is sort of the co-operative model that is being used. If a credit co-operative is looking for capital and cannot get it through a bank, it will find another way. We are seeing that, even though things on the ground have changed, credit unions are adapting to the situation and finding solutions.

I know that the Credit Union Central of Canada, which represents the credit unions in Canada, is in talks with the Minister of Finance about the possibility of new taxes to help the sector. It is the Credit Union Central of Canada doing that, not us.

[The Chair, Conservative, Michael Chong]

Thank you.

Ms. Bateman.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you, Mr. Chair.

My questions today will still focus on prosperity. I think it is very important for everyone.

You spoke about the importance of federal programs in your life and your work, and the positive outcomes. What do you think of the other measures? For example, do you think the tax system and regulatory system are important? Perhaps you could talk about the red tape. Could you comment on this approach of economic development and long-term prosperity and how the two come together?

[Shawn Murphy]

To address the issue, when it comes to regulatory changes and other things that would be necessary right now, I think one of the biggest issues that has been touched on is that there's a disconnect between what happens here in Ottawa and what's happening on the ground. Whether it be minority linguistic groups or any, in our particular case, cooperatives, they go into the local Service Canada offices or BDC offices with sound business proposals on what they would like to do. There is a complete disconnect when it comes time because they don't fall within a particular box. I think going back to the financial literacy, there is also a level of education that needs to happen within the civil service, within the bureaucracy, where people understand the realities on the ground and that things change. As we saw, that's why we have—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Can you give some examples of that, concrete examples? That would be very helpful.

[Shawn Murphy]

One was here in Ottawa, where a funeral home cooperative wanted to go in and get financing from the BDC. They were told, sure, we'll give you the financing, but you have to give 100% up front. Well, if they had 100% up front, why would they be at the BDC?

So there's that disconnect. Again, they were prepared to offer all kinds of tools and handbooks and everything else, but the bottom line was that they had a sound business proposal. In turn they went out and they were able to finance through other means. We continually hear stories like that, where there's this divide. It's not that there are bad intentions from the government and from the civil servants. It's just that there's this lack of understanding.

Going back to Madame Kenny's statement, we have to bring the people around a common table to try to figure out what's going on. What are the needs, and how do we make the tools? We can make all of the tools in the world, but if it's not addressing the needs then we're falling further behind.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you.

[Marie-France Kenny]

As I said earlier, I myself am an entrepreneur. With respect to red tape, since I was already a manager before I started my company, I had a fairly good idea of the market and the field in question. Still I got in touch with the community economic development organization in our area. I said that I wanted to create a business plan and asked what I would need.

I was given a BDC template to fill out. I came back with this huge brick. I needed someone to help me. I drafted my business plan. Then, I was told that there was no funding available to help me with my business plan and that I had to use a consultant, which would cost me $5,000. I had already done all that. My plan was very long.

Put yourself in the shoes of young university graduates who want to start their own business because there aren't really any jobs where they live. Nobody is going to help with their business plans. And it will cost them $5,000. First, we have to wonder where they would get that money and, then consider that they do not necessarily have the experience I had that enabled me to draft most of my business plan myself.

Entrepreneurs' needs vary. If you are a francophone living in Saskatchewan and you want to work in French, it is even more difficult.

You were talking about red tape. I think that access to the funding, education, management, support and expertise the communities need is a very important aspect that is currently lacking.

[Iris Unger]

I just want to support that. That's what we do at our organization. We help people through the red tape and through the business plans. We sit with them and it's hours of work.

I think especially for the minority communities, there may be organizations in the community that are set up to help them, but they don't necessarily have the language skills to be able to work with the person who wants to start the small business. For example, in Quebec if you go to your local CLD—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Forgive me for interrupting—

[Iris Unger]

CLDs are the local development centres, and I think they're funded—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

—but if you're spending such a quantity of your time guiding your client group through the red tape, could you give us a list of things we could improve on? It's nobody's intention to be an impediment to progress, but sometimes that gets lost in the translation.

[Iris Unger]

Yes. I think in this case we won't blame the government.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Well, no; I think everyone has good intent—

[Iris Unger]

Yes.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

—but that doesn't mean there aren't blockages, as Shawn pointed out.

Nobody's in business to be an impediment to helping. That's not the intention. So if you can point those out to us at any time, we would welcome that. I would certainly welcome that information.

[Iris Unger]

Unfortunately, again, a lot of it falls under provincial jurisdiction, so a lot of the forms and paperwork that our clients have to fill out are in French. That's where some of the big challenges are.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Oh, okay.