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Big Win for Credit Unions in Federal Budget

March 19, 2019

Ottawa, ON — Today, the Minister of Finance Bill Morneau presented his government’s fourth federal budget, and the final one before the next federal election, expected to take place in October of this year. Today’s document contains a number of key themes and items of interest to credit unions and small business in general.

Big Win for Credit Unions on Bank Act Review
Of direct interest to credit unions at the federal level, our focus in the months leading up to this budget has been on our outstanding recommendations under the ongoing five-yearly review of the federal financial sector legislative framework, which came to a conclusion with today’s budget. We are pleased to report that the government is moving forward on two of our most important recommendations: eliminating the requirement to send out paper statements to all members and restrictions around e-voting for AGMs. The Budget states:

In the latest review, stakeholders identified an opportunity to modernize the corporate governance framework for federally regulated financial institutions to keep in step with changes passed by Parliament to the Canada Business Corporations Act in May 2018. These legislative amendments will promote, among other things, a more democratic and transparent election process of board members. Some changes will also allow for easier participation in the election of boards. For example, members of federal credit unions would have more options for voting prior to and at annual general meetings, enhancing their participation in decision-making of federal credit unions. The legislative amendments will also afford the opportunity for institutions to reduce their administrative costs and regulatory burden by using technology in their communications with owners.

CCUA staff spoke in the lockup with senior members of Minister Morneau’s team to clarify that the last part of this section does mean that the requirement for federal credit unions to send paper statements to all members will be eliminated in the budget legislation. This is a significant victory for our federally-regulated members, and one we hope will also have downstream positive impacts on provincially-regulated credit unions as well.

CCUA was one of a select number of stakeholders invited to attend a secure pre-reading of the budget ahead of its presentation in the House of Commons by the Minister at 4:00 EST. In addition to outlining the government’s fiscal blueprint for the year to come, this budget represents the conclusion of the 2019 financial sector review, which CCUA has been engaged on since its launch in 2016. CCUA has achieved some important policy victories at the final stage of this process, which are outlined below.

The Vitals
The budget cited overall economic growth of around two per cent in 2018, a level in line with long-term potential growth for an advanced economy operating near full-employment. The government also feels that household debt levels have stabilized, largely due to higher interest rates and the many regulatory changes that have taken place on the mortgage side of the market in recent years.

Growth is expected to come down slightly in the years to come, to an average of around 1.8 per cent. This year’s deficit will come in $14.9 billion, rise slightly for two years to close to $20 billion, then start to come down again in 2021-2022. During the budget’s five-year projection period, the federal debt-to-GDP ratio is projected to decrease every year from 30.8 per cent this year to 28.6 per cent in 2023-2024.

In terms of new spending, particularly for a pre-election budget, there is not much in the way of new fiscal liabilities. By the government’s own reckoning, all policy items in this budget add up to only a net impact on the budget balance of $4.2 billion this year and $4.0 billion in 2019-2020, a small fraction of a percentage point of GDP in each of those years.

A new Homebuying Incentive
This budget is also introducing an innovative equity-sharing homebuyer’s incentive to be administered through CMHC. The incentive will allow homebuyers on a means-tested basis to reduce the amount owing on a mortgage without increasing the amount they must save for a down payment. It is expected that this program will be fully implemented by summer 2019.

The CMHC First-Time Home Buyer Incentive is a shared equity mortgage that would give eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC. The Incentive would provide funding of 5 or 10 per cent of the home purchase price. No ongoing monthly payments are required. The buyer would repay the Incentive, for example at re-sale. For example, if a borrower purchases a $400,000 home with a 5 per cent down payment and a 5 per cent CMHC shared equity mortgage ($20,000), the size of the borrower’s insured mortgage would be reduced from $380,000 to $360,000, helping to lower the borrower’s monthly mortgage bill. This would make it easier for Canadians to buy homes they can afford.

The budget will also increase from $25,000 to $35,000 the amount that first time homebuyers may withdraw from their RRSPs tax-free towards the purchase of their first home, for withdrawals made after March 19 2019.

Expert Panel on Housing Supply and Affordability
As announced in conjunction with the government of British Columbia earlier this month, the federal government will move ahead with the establishment of an expert panel on housing supply and affordability with that province, with federal dollars supporting the process. CCUA representatives in British Columbia have already started the process of bringing the credit union system’s voice to this important conversation in some of Canada’s highest-cost real estate markets.

Other Items of Note in Financial Sector Review and Other Areas

Updating Federal Financial Statutes
The new measures will also introduce new requirements for federally regulated financial institutions to disclose policies aimed at promoting greater diversity on boards and in senior management.

Technical amendments will also be proposed to ensure the legislation remains clear and current, and add further clarity on how investors, creditors and other participants may be compensated as a result of actions taken by financial sector authorities to sell, wind down or restore to viability a failing bank or financial market infrastructure.

FCAC Governance and Mandate Expansion
The Government of Canada is committed to protecting financial consumers, and it delivered on this commitment in 2018 by providing new protections to consumers and granting new powers to the Financial Consumer Agency of Canada (FCAC).

This year, the Minister of Finance will appoint a governance council to support the Agency in becoming a world leader in financial consumer protection. The Council will guide FCAC in its expanded mandate and promote the confidence of Canadians in our financial consumer protection system.

Unclaimed Balances
The Government of Canada is committed to protecting Canadians’ unclaimed deposits, which result when accounts, deposits or other instruments held by financial institutions have been inactive for 10 years. In 2017 and 2018, the Government consulted the public on proposed ways to modernize and improve the unclaimed deposits program and better serve Canadians.

In Budget 2019, the Government proposes to introduce legislative amendments to the Bank Act, the Bank of Canada Act, the Trust and Loan Companies Act and the Pension Benefits Standards Act, 1985 to expand the scope of the framework to include foreign denominated bank accounts and unclaimed pension balances from terminated federally regulated pension plans. These legislative changes will enable the Government to protect a greater number of people’s hard-earned savings and help reunite more Canadians with their lost or forgotten money.

Open Banking
In Budget 2018, the Government announced that it would undertake a review, and appointed an Advisory Committee on Open Banking last year. A public consultation paper was released in January 2019, and roundtable consultations are currently underway to learn more about how Canadians feel about open banking. The Committee will deliver a report to the Minister of Finance assessing the merits of open banking after the consultations are complete. Subject to its findings, the Government would assess best potential ways to move ahead with open banking, with the highest regard for consumer privacy, security and financial stability.

Payments Modernization
In Budget 2019, the Government proposes to introduce legislation to implement a new retail payments oversight framework, so that retail payment services providers can continue to offer innovation in services, while remaining reliable and safe. The framework would require payment service providers to establish sound operational risk management practices and to protect users’ funds against losses. The Bank of Canada would oversee the payment service providers’ compliance with operational and financial requirements and maintain a public registry of regulated payment service providers.

Budget 2019 also proposes to introduce technical amendments to the Canadian Payments Act to modernize the governance framework of Payments Canada. These proposed amendments follow a legislative review of the Canadian Payments Act undertaken by the Government in 2018.

High-Speed Internet Investments
In Budget 2019, the Government is announcing its commitment to set a national target, in which 95 per cent of Canadian homes and businesses will have access to internet speeds of at least 50/10 Mbps by 2026 and 100 per cent by 2030, no matter where they are located in the country. This is in keeping with the broadband internet speed objective set by the Canadian Radio-television and Telecommunications Commission (CRTC) for Canadian households and businesses across Canada.

…. Up to $1.7 billion over 13 years, starting in 2019–20, to establish a new national high-speed internet program, the Universal Broadband Fund. The Fund would build on the success of the Connect to Innovate program and would focus on extending “backbone” infrastructure to underserved communities (“backbone” is the central channel used to transfer internet traffic at high speed—the internet equivalent of a major roadway or railway spur). For the most difficult-to-reach communities, funding may also support “last-mile” connections to individual homes and businesses.

The budget makes a number of relevant commitments for CCUA members at both federal and provincial levels, the most significant of which being the progress on our financial sector review recommendations as outlined above. However, there are also other areas in which CCUA will continue to engage, and keep members up to date on progress as policies contained in the budget are designed and implemented. Please stay tuned for further updates on these and other policy matters of relevance as they develop.