Proceedings of the Standing Senate Committee on
National Finance
Issue 13 - Evidence - June 29, 2010 - Afternoon Meeting
OTTAWA, Tuesday, June 29, 2010
The Standing Senate Committee on National Finance, to which was referred Bill C-9, An Act to implement certain provisions of the budget tabled in Parliament on March 4, 2010 and other measures, met this day at 3:19 p.m. to give consideration to the bill (topic: Parts 2, 16 and 17).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: I call this meeting of the Standing Senate Committee on National Finance to order. I apologize for a bit of a late start. We were just passing two supply bills, both of which were passed in the Senate chamber.
This is the fifteenth meeting of the committee in relation to Bill C-9, the budget implementation act, 2010. We have had several meetings with government officials, a minister and outside stakeholders who are interested in or impacted by this legislation. This afternoon, we will continue to hear from outside stakeholders. Our first session will focus on Part 2 of the bill, Part 2 of 24 parts. Our second session will continue the discussion we had this morning in relation to Parts 16 and 17 of the bill.
Part 2 amends the Excise Act and the Customs Act. On our panel, we are pleased to welcome Mr. Rob Cunningham, Senior Policy Analyst with the Canadian Cancer Society. Also appearing on this panel is Mr. Jack Millar, who is wearing two hats this afternoon. Mr. Millar is here on behalf of the Direct Sellers Association of Canada, as a member of their board of directors, and as the chair of the GST Leaders Forum. On behalf of the GST Leaders Forum, he is accompanied by Mr. Danny Cisterna. Thank you for being here. We heard about the direct sellers. Have you had the opportunity to read the transcripts of our earlier hearings?
Jack Millar, Member, Board of Directors, Direct Sellers Association of Canada and Chair, GST Leaders Forum: Yes, thank you, I have.
The Chair: You will know some of the points raised at that time. In your opening remarks, if you wish to refer to or clarify any points or misunderstandings we might have had earlier, that would be wonderful.
[Translation]
Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society: Mr. Chair, on behalf of the Canadian Cancer Society, I would like to thank you for the opportunity to testify on Bill C-9.
[English]
My name is Rob Cunningham. I am a lawyer and senior policy analyst with the Canadian Cancer Society. My testimony today will focus on Part 2 of Bill C-9 and the measures with respect to tobacco contraband. We support these provisions in this bill, and we urge all members of the committee to similarly support those sections of the bill.
As all parliamentarians know, tobacco contraband is an extremely serious problem from many perspectives. From the health perspective, our perspective, higher prices are the most important way to reduce smoking among the general population, and especially among teenagers who have less disposable income and are more sensitive to price changes.
As we know, there is a very serious contraband problem, less so in Alberta and British Columbia. It is interesting that Ontario and Quebec, which have the lowest tobacco prices in Canada, have the most serious contraband problem. For us, the problem is not one of higher taxes or price but one of supply. The provisions in this bill help control the supply chain.
From the public safety perspective or public revenue perspective, contraband is also very serious. Federal and provincial governments are losing vast sums, exceeding $1 billion annually. Some estimates are far higher than that. Certainly, these are revenues that governments need, given the current fiscal situation.
The provisions in this bill are a desired component of an overall strategy to reduce contraband, not the only component, but one we support and that we have been urging for five or six years. The enhanced stamping regime is part of a trend we see internationally. Turkey, Brazil and other countries are going forward with similar measures. How will that help? It will be much more difficult to counterfeit because each stamp will have a unique identifier, in the same way a $5 bill has a unique number. Each stamp and package will have a unique identifier. It will help with counterfeiting. There will be covert and overt features. It will also help with licensed manufacturers who may be producing more than they are declaring, more than they are reporting and paying taxing on. If they overproduce, they will be caught because there will be a unique identifier for each package that they will no longer be able to get away with it in the way that is currently possible, where you do not have a stamping and marking that varies.
This system will also set the base for a tracking and tracing system as a future step, in the same way that Purolator courier, for example, is able to tell you where your package is or what the last point of change was. A tracking and chasing system will help identify the point of diversion, the last legal distributor and so on before it went into the illicit distribution chain. That will be helpful.
Senator Segal has initiated a Senate inquiry with respect to tobacco contraband. We commend him for that. He has urged that there be a Senate committee study in more detail of this issue. We support that, and we would urge the Senate to follow that direction and recommendation.
In a nutshell, we support these provisions in the bill as one component with respect to what is needed to be done to deal with contraband. Certainly, other measures are needed. I look forward to any questions you may have.
Mr. Millar: Honourable senators, on behalf of the 50 member companies of the Direct Sellers Association of Canada, which includes such well known names as Mary Kay, Avon and Tupperware, and their 900,000 independent sales contractors, (ISCs), across Canada, I wish to thank you for the opportunity to participate in your consultations. My name is Jack Millar. I am tax counsel to the Direct Sellers Association of Canada, and I have been a member of the board of directors of the association since the early 1990s.
Direct selling companies and their ISCs market a wide variety of products directly to consumers, usually at the consumer's home, rather than in traditional retail establishments or other fixed places of business. In 2008, the Canadian direct selling industry recorded retail sales of $2.2 billion, an increase of 11.5 per cent over the previous five years.
The direct selling industry provides accessible business opportunities to all Canadians across Canada without restrictions with respect to gender, age, education, knowledge or previous experience.
A 2003 study found that 11 per cent of the ISCs were unemployed before starting their direct selling businesses. One third of the ISCs are involved as a primary work opportunity, and the balance, over 67 per cent, use direct selling as a source of additional or secondary income. Fully 91 per cent of the ISCs in Canada are women.
I have been asked to appear today to address the Excise Tax Act amendments contained in clause 59 of Bill C-9. Clause 59 sets out what is termed the "network sellers mechanism."
The Chair: That is page 65 of Bill C-9 for those who are following.
Mr. Millar: By way of background, the GST direct sellers mechanism, DSM, which is to be distinguished from the new network sellers mechanism, (NSM), was enacted in 1991 at the inception of the GST. It is a classic example of government and business working in partnership to develop a policy that has been beneficial both to the Government of Canada, in ensuring maximum GST revenues, and to the industry by streamlining the paper burden, which otherwise would have been imposed on the then 500,000 plus small ISC businesses across the country.
The DSM is based on pre-collection and remittance of GST by the direct selling companies themselves, on the suggested retail price of the goods. It removes a considerable burden from both ISCs and the CRA, which would otherwise be in place if all the small businesses had to become GST registered and collect and remit the tax to the CRA. The DSM eliminates this requirement, which results in administrative efficiencies and cash flow advantages to the government with no GST underground economy in the direct selling industry. It has been viewed by the Department of Finance, the CRA and the industry as a win-win for all parties.
The problem is that the DSM has not been available to approximately 20 per cent to 25 per cent of the industry, which operates on an independent sales representative, as opposed to a buy-resell, basis. As the use of this sales representative model began increasing in the industry, the DSA initiated discussions with the Department of Finance in order to address this problem. That dialogue has resulted in the gap being filled by the new network sellers mechanism that is in clause 59 of the bill.
The NSM will extend the mutual benefits of the DSM by reducing the administrative costs and compliance burden on the sales representatives, who will no longer need to be GST registered. It will reduce the CRA's administrative costs as fewer representatives will be GST registered, thereby eliminating many small business audits and reviews by the CRA. It and by eliminating the requirement to continually monitor GST registration status and whether GST should or should not be paid on commissions where offsetting input tax credits would be available in any event.
When enacted, the NSM will ensure that the benefits of the streamlined procedures will be available throughout the entire direct selling industry.
I want to emphasize to the committee that clause 59 is revenue neutral. The government will continue to receive "tax at the max," and the government's credit risk exposure will be decreased because there will be no issues of non-remittance of tax with respect to GST or HST paid on the commissions.
I also want to emphasize that this NSM is very narrowly focused. In discussions with Finance, they wanted to make sure it was "ring-fenced," to use their terminology, so it could apply only in the direct seller's channel, where you have these 900,000 small businesses that are involved in the sale of the direct selling company products.
The reason I want to bring that forward at this time is, in reading the prior testimony, there were question of privileges of whether or not this new NSM would be available for sales of Slap Chop or whether it would be available if someone was buying something at a flea market. The answer to both of those inquiries is no because a requirement to use the NSM as the original DSM is that there has to be someone in between who has a contractual right to buy goods and resell them on behalf of the direct selling company, or has the contractual right to represent that company in the course of its making direct sales to end consumers. Those legal facts do not exist in a Slap Chop or flea market type of situation, because the other aspect is that the sales cannot be made at a fixed place of business, such as a flea market or a normal store.
We have provided the clerk with a copy of the 2008 Pre-Budget Submission. The appendices of that submission have some diagrams as to how the mechanism would work. I would be happy to walk the committee through that, if that would be of assistance. I look forward to responding to any questions that committee members may have.
The Chair: I have just been informed that there is a 15-minute bell for a vote in the Senate, which means we will have to adjourn for, presumably, 15 minutes to a half hour.
Mr. Cisterna, did you have further comments you wanted to make?
Danny Cisterna, Member, GST Leaders Forum: Not with regard to the Direct Sellers Association but with regard to the GST and HST.
Mr. Millar: I would like to thank you for your attention in terms of the opening statement on behalf of the Direct Sellers Association of Canada. I would now like to put on my second hat and indicate that I am a partner in the Toronto law firm of Millar Kreklewetz LLP and I am the chair of the most recent GST Leaders Forum. With me today is Mr. Danny Cisterna, who is also a past chair of the forum and a partner at Deloitte & Touche LLP.
The GST Leaders Forum is an annual gathering of experienced accounting and legal professionals from across Canada who meet to discuss current issues and exchange knowledge in terms of present and proposed GST/HST legislation. We thank you for the opportunity to be here today in order to express concerns that we have with parts of clause 55 of Bill C-9 with respect to proposed changes to the "financial services" definition. Mr. Cisterna will now set out the relevant background to those concerns.
The Chair: I am advised that is on page 29 of the bill, Excise Tax Act, clause 55.
Mr. Cisterna: In a scheme of a value-added tax like GST, a financial service involving the supply of a financial instrument between two parties is exempt from GST, as are integral services provided by many financial intermediaries who assist in the provision of such financial services. They include insurance and mortgage brokers, securities and mutual fund dealers, et cetera.
Since the inception of GST, their services have been well understood by businesses, taxpayers and the CRA to be exempt from GST, which was originally intended. In fact, the government's August 8, 1989 Goods and Services Tax Technical Paper on the GST states that "arranging for the purchase, sale or placement of a financial instrument" is a financial service. It specifically refers to services provided by insurance agents, mortgage brokers and investment dealers as tax exempt.
The Bill C-9 proposals, however, would render taxable a wide range of these services, well beyond what we understand was intended to be captured by them. Should this happen, Canadian consumers will directly or indirectly pay, conservatively, more than $2 billion of additional GST compared to what is paid today.
In addition, HST in Ontario and British Columbia effective July 1, 2010 will substantially increase this tax burden on Canadians. This will all have been done without any formal policy review or consultations with businesses and consumers.
A brief history of how clause 55 came about will be helpful in understanding the impact. By way of a press release on December 14, 2009, and in response to certain court decisions that it felt overly expanded the scope of financial intermediary exemption, the Department of Finance proposed an exclusion from exempt financial intermediation, of a service "facilitative" or "preparatory" to the provision of a financial service.
Then, on February 11, 2010, the CRA published Notice No. 250, which provided information on the press release. It contained several specific examples of what were taxable services effective December 14, including commissions paid to mutual fund dealers, commissions paid to persons such as automobile dealers arranging for the provision of financing, and a range of other financial intermediation services.
These examples have been understood and expressly identified in previous CRA publications as exempt from GST. Furthermore, these singled out services were not the object of the concerns raised in the court decisions that led to the press release.
Through follow-on discussions with the CRA, indication was given that certain types of insurance and equity brokerage were also subject to GST, again effective from December 14. Responding to extensive feedback from stakeholders, Minister Flaherty issued a statement on March 26, 2010, whereby he indicated that the proposals contained in clause 55 were not to result in the imposition of any new taxes. The CRA was then tasked with performing a further review to see what should and should not be scoped into the proposals. CRA has yet to issue its revised position.
Mr. Millar: Notwithstanding the Minister Flaherty's March statement and the ongoing CRA review, the GST Leaders Forum has serious concerns that the proposals before you in clause 55 will have unintended effects and go further than the minister has anticipated. The proposals create greater rather than less uncertainty, in our considered opinion. The minister himself has stated, "business needs clear GST rules." The proposals are far from clear and will lead businesses, consumers and the CRA itself to confusion as to how to apply them if they are passed into law as currently drafted.
Further, the proposals are to take effect December 14, 2009. In our view, it would be unfair to impose a requirement on consumers and businesses to account for tax on the affected services before there is clarity as to what was intended to be taxed.
Finally, these provisions could be interpreted as causing virtually all financial intermediary services to become taxable. As Mr. Cisterna has indicated, since 1991, many of these intermediation services have been clearly understood to be exempt from the GST. The functions of these impacted intermediaries have not changed in any significant way since 1991.
Furthermore, these services were not subject to any of the court cases that have been the concern of the Department of Finance. Therefore, should these services now become taxable, in our submission, this would be in direct conflict with the minister's March statement.
I would like to note that included in the proposals is the ability to prescribe certain services to be exempt so that they would not be subject to these new taxable provisions. We do not believe, however, that this is an appropriate means for ensuring that these new provisions do not go further than intended. What we see is a prescription of a litany of specific exclusions by regulation, which may only exacerbate the underlying uncertainty inherent in the wording of the current proposals.
It is the recommendation of the GST Leaders Forum that clause 55 be removed from Bill C-9. This would allow the Department of Finance to be in a position to follow a process of consultation with stakeholders as to the appropriate policy objectives, including leveraging off the review currently being conducted by the CRA. Then, a new clearer, more focused amendment could be developed and brought forward with a prospective application date.
On behalf of the GST Leaders Forum, we thank you very much for the opportunity to appear before you today and I look forward to answering any questions that you may have.
The Chair: Thank you. First, could you explain the coming into force? At page 31, it says, "proposed subsections (1) to (4) are deemed to have come into force on December 17, 1990."
Mr. Millar: Yes. To make sure we are at the same place, we are at subclause 55(5), page 31. This provision is of grave concern to us. It says that these proposed new changes, which we as practitioners have a difficult time grappling with and advising our clients about, are stated to go back to the first day of the enactment of the GST legislation, which was December 17, 1990. It is to go back 20 years. However, it says that it will only come in for December 14, 2009 onward. It will have a differential retrospective application. Prima facie it goes back to 1990 but if you never paid tax on any of these intermediation services before December 14, 2009, and if none of these additional services indicated in subclause 55(1) are included, it will not go back before December 14, 2009. It will go back to December 14, 2009, for sure and then if you are in an unfortunate position in any of the prior period that there had been tax on some of these services, notwithstanding you might have been providing services to multiple customers and in one case there was tax, the provision goes all the way back 20 years to the beginning of the GST. That is the differential of the two dates.
The other aspect is contained in subclause 55(6), which states that notwithstanding a normal four-year audit limitation period, the CRA can assess beyond the normal four-year audit limitation period for one year up to the date after Royal Assent. They have a one-year window to assess all the way back to the beginning of the GST.
The Chair: Oh my. Mr. Cisterna, do you have a comment to make?
Mr. Cisterna: Yes. If I may add to Mr. Millar's comments, I will put this into perspective. The retroactive impact is attacking one aspect of clause 55, which deals with asset management services. For the most part, anyone providing those types of services would have been charging GST. They are trying to change it so that you cannot get free of GST from the past when it was originally charged on those services.
The object of what I was talking about was intermediation services with respect to mortgage brokers and insurance agents, et cetera, who have not charged GST in the past. Therefore, it is not an issue with respect to being taxable prior to December 14, 2009.
Mr. Millar: The only other time a provision like this has come forward in a bill was in respect of the Quebec school bus situation. This exact provision was brought in with the proposal to retroactively go after it.
The Chair: I remember that debate.
Mr. Millar: This is only the second time that such a provision has been brought forward, to my knowledge.
The Chair: We will suspend. I hope that you will be here when we return. We should not be long, but we never know.
Honourable senators, we have 15 minutes to get to the chamber for the vote.
(The committee suspended.)
(The committee resumed.)
The Chair: We will get under way again, our apologies. Our first duty is to be in the Senate Chamber when there is a vote. The good news is that the vote is over; the bad news is that there will be another one soon.
Senator Mitchell: The bad news is that we lost the vote.
Senator Gerstein: Everyone has a perspective on that. That is subjective!
The Chair: We will now go to questions. Thank you all for your points. We will try to keep in mind the points that you made, but do not hesitate to try to remake them as you are answering questions. We do not mind that at all.
Senator Marshall: My question is to Mr. Millar and Mr. Cisterna. It is on clause 55. I was aware that it was an issue and that there was some confusion after the court case and after the legislation was released. Was there not some clarification issued by the Department of Finance or by the Canada Revenue Agency? Could you take me through that? You would have been provided with all those documents, would you not?
Mr. Cisterna: As I mentioned the stakeholders expressed many concerns. The concerns were loud and fierce. There was an article in The Globe and Mail, and the Minister of Finance indicated on March 26 that they were just dealing with clarification of the rules with respect to these — I will call them "offending" — court decisions. The intention was not to raise additional taxes such as taxing these things that have always been exempt from the beginning of the GST.
What followed from that was, when they issued their initial interpretation of the original rules in February, 2010, the concerns were raised and the minister made a statement on March 26. CRA is now reviewing their original policy. That is probably what you are referring to, that they are getting clarification on those.
Senator Marshall: Was there anything after that?
Mr. Cisterna: No. We are waiting for this clarification from the CRA.
Senator Marshall: My understanding is that there was something released today.
Mr. Cisterna: It is possible.
Senator Marshall: They have indicated that the Canada Revenue Agency will soon be publishing revised Notice No. 250, based on the policy clarifications and additional details provided in the revised explanatory notes. Have you seen that yet?
Mr. Cisterna: Not yet, but we heard it was close to being released. We do not know what the contents will be.
Senator Marshall: It would be interesting to hear your views once you do look at it.
Mr. Cisterna: The bill is badly worded. The Canada Revenue Agency, in their defence, has to deal with badly worded law, as explained by the Minister of Finance himself. Even though they can clarify and do these administrative positions, they have to deal with it. It is a challenge for them in that regard. It will be interesting to see how that goes forward.
The Chair: I am interested in this badly written law written by the CRA's colleagues at the Department of Justice.
Senator Marshall: What type of clarification comes from the Department of Finance, whether it be the minister or the department or the Canada Revenue Agency? Are there notices and interpretation bulletins? What types of documents would affect this?
Mr. Millar: The CRA is mandated to apply the law as it is written. One can see why there was a concern here. We had this Notice No. 250 issued in February, which basically said that many of the traditional things that financial intermediaries do will now be taxable under this new clause 55.
As Mr. Cisterna indicated, there has been a lot of confusion in the industry. The minister issued his announcement stating it was not the department's intention to raise new taxes. He said they were sending it back to the CRA to look at it again.
Senator Marshall, we see this new document and it says all of these things are now not taxable, that is fine, but only as far as it goes. The wording of the actual provision of clause 55 has not changed one jot, yet CRA has said they have changed their policy substantially, stepping back and remembering that their obligation is to apply the law as it is written. This does not give us a great deal of comfort.
Senator Marshall: You would like to see something additional come forward?
Mr. Millar: Yes. It is a step in the right direction.
Senator Marshall: I am interested in hearing your views on the document that I have, and I would be more than happy to provide it to you at the end of the session.
Mr. Cisterna: Thank you.
The Chair: Senator Marshall, thank you. Did you indicate that the new interpretation bulletin is out or soon would be out?
Senator Marshall: I understood that it was out.
The Chair: Just today?
Senator Marshall: That is my understanding.
The Chair: Could we make that available to everyone? Once Mr. Cisterna has a chance to look it over, perhaps he could send us back a note with his comments on it.
Mr. Millar, you said earlier today that we should prevent this part of the legislation, clause 55, from progressing until this is clarified. Could you tell us in writing, once you have had a chance to review it, whether you think this clarifies it?
Mr. Millar: Yes, we would be most happy to do so. I was speaking to a senior official at CRA late yesterday afternoon, and he said it was not available at that time. I am happy to hear that something may now be forthcoming.
The Chair: If you could send something in writing to our clerk, that would be helpful. You have made quite a strong statement in saying that we should not proceed with this clause.
Senator Ringuette: I know that you have been in the business for a while, but you must bear in mind that interpretations from CRA are much different from legislation and can be much more volatile, depending on who makes the interpretation.
This $2-billion issue is no small change. When the officials were before us, they never mentioned any new taxes at all. I have the briefing book in front of me. This is why we have to do the job that we are doing. I am very happy that you are here.
I would like, first, to understand the network seller mechanism. Do I understand correctly that the taxes will be sent to the different provincial and federal revenue agencies directly from the warehouse as soon as the item is sold and that the customer's price includes the sales tax?
Mr. Millar: Thank you for your question, senator. As I indicated in my initial remarks, 50 such companies are members of the Direct Sellers Association of Canada. Under these mechanisms, they are required to collect and remit the tax at the suggested retail price to the end customer.
When the direct selling company makes a sale, they have to remit the tax based on the final retail price. The benefit of these mechanisms is that these 900,000 small Canadian businesses are taken out of the loop. They do not have to be GST registered; they do not have to collect the tax; they do not have to file returns. They are relieved from this administrative burden.
The responsibility for the tax is with the direct selling companies themselves, but it is based on the end price to the consumer.
Senator Ringuette: For example, if the Avon lady comes to my house and I order something, will the invoice indicate the price of the item including the sales tax?
Mr. Millar: The full amount of the tax, that is correct.
Senator Ringuette: That full amount will be included in the price, and it will not be added on?
Mr. Millar: No, it is already disclosed in the billing to the end customer.
Senator Ringuette: I am still somewhat upset and concerned. This is a $2-billion issue. You indicated earlier that there was no consultation. This is not the only part of this legislation that has not been consulted upon.
Senator Ringuette: Mr. Chair, please put my name down for the second round, because this is difficult.
The Chair: We thought we understood everything from the government's point of view, and now we are learning things that we were not told about earlier, which will take us some time to understand.
Senator Mitchell: Thank you, gentlemen. This is interesting for all of us, and very informative.
Mr. Millar, you mentioned that retroactive taxes are involved here and that they could go back 20 years. I would like to confirm that. I am sure there is hardly anyone around this table who could believe that the government would want to tax retroactively.
Will companies or individuals have to pay taxes that they did not pay as long as 20 years ago?
Mr. Millar: Thank you for your question. Unfortunately, the answer is yes. As my colleague Mr. Cisterna has indicated, it is retroactive to December 14 of last year for everyone, and for a number of other parties it is potentially retroactive to the inception of the GST. As I indicated, there is a further rule that the normal four-year assessment period limitation is suspended for one year after Royal Assent.
To answer your question directly, we have a common colleague for whom the CRA has already provided a draft assessment based on clause 55 reaching back well before December 14, 2009. The CRA has agreed that perhaps they will not formalize that assessment until the bill is actually assented to.
Senator Mitchell: The ministry is so exuberant about raising taxes retroactively that they have started before the bill has even been passed.
Mr. Millar: That is correct.
Senator Mitchell: From time to time, the courts have excluded certain products or services from the GST, for whatever reason. Is it true that under this legislation some or many of those products or services will now be re-included for taxation?
Mr. Millar: Yes.
Senator Mitchell: We will be taxing things that businesses have gone to court to win an exemption to? That will be thrown out and they will now be taxed on those products?
Mr. Cisterna: That is absolutely right. In fact, that has happened more than once under the GST legislation in Canada. It is very disappointing that, having expended the money and effort to follow an appeal process that is set out in the legislation, the ruling can be thrown out. The rule of law and justice is no longer applicable, because the government can make retroactive legislative changes.
Senator Mitchell: Yes, we should emphasize the rule of law and the rule of justice in our report, too.
This does not necessarily affect big companies such as banks or huge manufacturing enterprises. This will affect a lot of small business people who are often just hanging on.
Mr. Millar: I mentioned the Quebec school bus case. It went to the Federal Court of Appeal, which held that the Quebec education boards were entitled to exemption from the tax. Notwithstanding that the Court of Appeal approved it, the government brought in a parallel type of provision.
This case involves investment advisers. The case went to the Federal Court of Appeal, which said that the services of those investment advisers are exempt from tax. They have now brought in this provision and are saying that, notwithstanding the decision of Court of Appeal, we are going to go backwards.
Part of the concern we have as long-term practitioners is that both Mr. Cisterna and I have been consultants with the Department of Finance and CRA. We have had occasion to be involved for a number of years. It is one thing to have retroactive amendments when you have a new tax. If it is 1991 and things need to be changed, that is one thing; but it is 20 years. When you have this type of change that potentially can reach back to the beginning of the tax, we, as practitioners, say that should not be the case.
The Chair: Your client could be long gone, on that point. You are responsible for the tax. You are supposed to collect from your client and you could end up having to pay that tax.
Mr. Millar: This is a constant problem. As the chair has correctly pointed out, the suppliers are tax collectors on behalf of the CRA. It is not a tax on the supplier; it is a tax on his or her or its customer.
The position that the chair has pointed out is happening all too frequently, where the supplier has been assessed because he or she did not collect the tax. Then your customers are no longer in business — they are deceased or whatever — and now it has to come out of your pocket directly.
Senator Mitchell: Do you have any estimate of how much extra tax — call it an increase, because that is what it is — will be collected as a result of this initiative?
Mr. Cisterna: I do not know the answer to that question. However, to continue on a point about the problem this puts businesses in, and in respect of what Mr. Millar said about investment management services; when this case went through and essentially became the rule, the CRA insisted that the suppliers continue to collect tax or else they would be assessed. That was based on the Federal Court of Appeal, that these services were no longer taxable.
Many of the suppliers told their clients that they would continue to charge the tax, but the clients might find a remedy through the Excise Tax Act to file a rebate for tax paid in error. This retroactive amendment essentially says that remedy is out the window because of the coming into force. It put those investment managers in a bad position. Many of their clients commented that they had not followed the rule of law. They commented that perhaps they should have stopped charging the tax or changed their agreements. I understand there was a threat, whether it actually happened, of a class action lawsuit against those suppliers, which is to your point about putting many of these suppliers in a bad position.
Senator Murray: I have a brief observation. I remember very well the Quebec school bus case. I was chair of this committee at the time. There was another similar case at about the same time.
We had Marc Lalonde in here, a former Minister of Finance and of Justice. We had Roger Tassé, a deputy minister of Justice. I think we had the Canadian Bar as well, all of whom came to denounce what was being done. I think it was under the Chretien or perhaps the Martin government — it does not matter — but it went through. With the honourable exception of our friend Senator Moore, the entire government caucus pushed it through Senate.
This is not to make a partisan point. The point is that once you allow an awful precedent like that to take place, future governments build upon it. That is what is happening here.
Senator Massicotte: I was not here for your presentation but I read the notes and I read your speech. I am still at the point of trying to understand the problem. I think I know how the GST works. You are saying your direct sellers have a special arrangement called DSM, whereby the company selling the product prepays the GST; therefore, your representatives do not have to collect the tax and do the reporting.
I understand the issue is that your direct sellers still are being allowed to do that, but under proposed amendments, those who operate on a sales agent basis will not be eligible. I presume they are being considered by the government to have independent reporting responsibility. Is that where the problem lies?
Mr. Millar: Thank you for your question, senator. I would be pleased to elaborate.
A number of years ago, the model was that a direct selling company would sell inventory to the independent sales contractor, who would then resell those products to his or her customer — predominantly her customers. As logistics have become sophisticated and as delivery times have shrunk, it is a lot easier to be able to deliver goods directly to the end consumer.
What has happened is that old model, where the independent sales contractor would buy and resell the products, has been replaced with the direct selling companies now selling directly to the end customer and the intermediary earning a sales commission. You have these 900,000 small business people who interact with customers in their neighbourhood throughout Canada and effect sales.
If I could make one aside here, in order to be into this new mechanism, 90 per cent of the sales reps have to earn less than $30,000. We are talking about small businesses. As I indicated before, over 67 per cent of the people in this industry are in it on a part-time basis.
They were buying business materials and having to pay tax on them. They were saying, well, I am in business, so I should not have to pay tax. I have heard the GST is not a tax on business so I will become registered. The CRA had all these people registered that they did not want in the system because all they were doing was giving them the money back that they paid on their business materials. They wanted to work out a way to get them out of the system so they did not need to have all these registered micro-businesses.
With this new model, they have said yes, it is the same issue for the CRA. We do not want these micro-businesses requiring all our administrative time and effort. It is not fun to go out coast-to-coast and audit some mother because she might have dealt with the GST incorrectly. They have decided that this is the way to go and everyone is happy.
The government is happy because their revenues are the same. The CRA is happy because they do not have to use their audit resources on these micro-businesses. The direct sellers are happy because their sales reps are happy and maybe they will be able to spend more time selling their products and not preparing for filing.
Senator Massicotte: Where is the problem with the legislation, then?
Mr. Millar: There is no problem. Clause 59 is grand. Unlike clause 55, clause 59 has evolved through a series of detailed discussions and interactions with department officials. It is viewed as a significant advancement by the industry.
Senator Massicotte: They are not legally employees?
Mr. Millar: They are not.
Senator Massicotte: Irrespectively, Revenue Canada says we will treat them like an employee and look to the employer to collect the tax.
Mr. Millar: Absolutely.
The Chair: The main area of surprise and concern has been with respect to the intermediary financial services side of things.
Mr. Millar: Yes.
The Chair: Mr. Cunningham, are you happy with what is the changes with respect to cigarette excise tax stamping?
Mr. Cunningham: Yes, we have been supportive of the measures in this bill with respect to tax stamping as a component of a strategy to prevent contraband. Certainly, other measures would complement that.
Senator Murray: Health measures?
Mr. Cunningham: Health measures, yes, but even contraband prevention measures in terms of control of raw materials, the supply system, working with the Americans for the illegal factories on the U.S. side of the border, et cetera.
The Chair: I told a photographer that he can take photos. Do you object, having appeared before the panel?
Mr. Cisterna: No.
The Chair: Unfortunately, we are out of time so he will not be able to take many photos. Also, we have another panel set to deal with afterwards.
You are aware of the area that has caused us some surprise and concern. The more information you can give once you have had an opportunity to review this explanation — and we understand from the minister that he is reconsidering this whole situation — would be very helpful. Thank you very much.
In this second session, we will continue the discussion we began this morning in relation to Parts 16 and 17 of Bill C-9, dealing with Canada Deposit Insurance Corporation Act and federal credit unions legislation.
[Translation]
We are pleased to have with us today Mr. Claude Béland, President of the Mouvement d'éducation et de défense des actionnaires, and Mr. Bernard Brun, Director, Government Relations, Desjardins Group.
[English]
We have one hour set aside for this particular session. Hopefully we will not be interrupted again.
[Translation]
Claude Béland, President, Mouvement d'éducation et de défense des actionnaires: Mr. Chair, I represent the Mouvement d'éducation et de défense des actionnaires. This movement promotes shareholder participation. In times of financial crisis where problems in the financial sector abound, we promote transparency and simplicity to make things easier for consumers.
I have worked for over 40 years in the area of cooperatives, especially in Quebec. I was also the chair of the International Cooperatives Banking Association for close to seven years. In fact, I have spent my life differentiating between cooperatives businesses and share capital businesses.
Our main task as part of the International Cooperatives Banking Association was to ensure that entities that call themselves cooperatives respected the fundamental principles that distinguish cooperatives from traditional businesses.
I was astonished to learn very recently that in the bill on jobs and economic growth — an omnibus bill — legal provisions that I was not aware of had been inserted allowing for the creation of federal credit unions. And this was done without any kind of genuine debate on these legislative amendments concerning federal credit unions, amendments which in my opinion are extremely important.
To my knowledge, no consultation was sought with the cooperative sector on this subject and that is why, when these amendments to the Bank Act were adopted, no debate was held on this matter.
However, not only credit unions, but cooperatives in all sectors of activity are, as you know, very important in Canada and in all provinces. I do not work exclusively with credit unions anymore, but I know that they exist in almost all sectors of activity. There are more and more of them. So in Canada, cooperatives play a very important role.
Cooperatives were established in the 18th century, practically at the same time as democracy. When revolutions gave way to democracy, some people decided to attempt to introduce the principle of economic control into the economic world.
Cooperatives, as the International Cooperative Alliance has stated repeatedly, are first and foremost associations of individuals and not of capital. They differ markedly from banks because they are owned by their customers. We call them members, whereas banks are owned by their shareholders.
In the case of cooperatives, all members are entitled to participate in the general meetings, which is not the case with banks. We at the Mouvement d'éducation et de défense des actionnaires know this because a few years ago, we tried to put forward a proposal during the general meeting of a bank, but we were told that we did not have the right to do so; that only the board of directors could make proposals. We had to go before the courts to secure the right to make proposals.
There are thus fundamental differences between the world of cooperatives and that of traditional business. Not only do cooperatives imply collective ownership and the participation of all customers in general meetings — and when I say customers I am referring naturally to members — but the concept of sharing is also embraced. Collectives are based on ownership, participation and sharing. People are not remunerated based on the capital invested. Any surpluses are shared based on the activities carried out with the cooperatives. There is also the heritage aspect to consider. The wonderful thing about the cooperative world is that, given that our shares are not listed on the stock market, cooperatives cannot be transferred and are thus reliable hubs of the economy.
For example, the Desjardins Group has existed in Quebec for the past 110 years. Had we been a share capital company, I think some very rich investors would have taken over ownership of the group a long time ago. We use a cooperative formula; for example, someone from Japan could give us a certified cheque in the amount of $150 billion, but the next day he would realize that he still has only one vote because, with us, one person gets one vote, not one vote per share.
That is true for cooperative banks in New Brunswick, Manitoba and for the entire cooperative bank network, and it is truly a valuable asset.
When I look at the amendments set out in Bill C-9, I see that the creation of new cooperatives is not desirable. It is not even about turning cooperatives into a single cooperative that would be headed by another jurisdiction. No; the desire is to create cooperatives where the rule of equality and the democratic vote would be diminished because, at the same time, investors would be allowed to purchase voting shares and could elect their group of investors that way. I call that a hybrid company, not a cooperative.
I have no objection to the creation of such hybrid companies, if there are people who are unhappy with cooperatives and who want the opportunity to register shares on the stock exchange or to go and seek out capital and give capital power. If they want to do that, that is well and good; but that is not what a cooperative is. Making them category D or F banks is another thing all together.
What, in my opinion, creates confusion is the use of the word "cooperative" in saying, "Look how great we are. We have good governance rules. We are taking care of our employees. We are good cooperate citizens."
A bank can say that too. That is not what makes the difference. The real difference is that, on the one hand, one share equals one vote; and on the other, one person gets one vote. That is the fundamental difference.
Another important comment is that Bill C-9 refers solely to local cooperatives. I did not see — and it is true that it is difficult to find things in an omnibus bill — anything that talks about federations or central banks. In other words, the creation of small independent banks will be encouraged. And alongside the major Canadian banks, we would have a network of small banks that would be called federal credit unions.
That is unfortunate when we are so proud of the strength of the Canadian banking system. Will the superintendent of financial institutions be very pleased to have, in addition to the major Canadian banks, a network of small banks with $5 million in capital? Because that is the minimum amount. Who will oversee these small banks? The superintendent, that is who.
This is where questions arise. There has not been sufficient discussion on the bill, and I think that is important. I believe that this was done hastily and without sufficient consultation.
It would be beneficial to delay the passing of this bill, but I am well aware that this is part of a budget bill and that can be quite difficult to do. Nevertheless, I do not see how Canada would benefit from the creation of cooperatives that do not respect the rules set out by the International Cooperative Alliance. In my dealings abroad, people will tell me that Canadian cooperatives are not true cooperatives but rather hybrid cooperatives. I do not think it is in our interest to do this.
The Mouvement d'éducation et de défense des actionnaires joins with all those who recommend simplifying, for the benefit of all consumers, all financial documents, and we are in favour of transparency, simplicity and clear information. What lesson will consumers learn from a cooperative in which people exercise power because of capital? They will no longer understand what happened to the old cooperative system, which has existed for over 200 years. Mr. Chair, those are my remarks.
The Chair: Thank you very much for your comments, Mr. Béland. Mr. Brun, is there anything you would like to say to our committee?
Bernard Brun, Director, Government Relations, Desjardins Group: Thank you, Mr. Chair. I represent the Desjardins Group, which you are no doubt familiar with. It is the largest financial cooperative group in Canada, and the sixth largest in the world. It has overall assets of a little over $160 billion and nearly 6 million members. Given that context, you will understand why the Desjardins Group is very interested in any and all legislation or legislative amendment that will impact credit unions.
The Desjardins Group looked at Part 17 of Bill C-9, which allows for the incorporation or the continuance of an institution under federal jurisdiction. What is important to stress, however, is that the Desjardins Group is in no way behind this legislation — because, suddenly, different things may be said — nor was it involved in the process that led to the preparation of this bill. So it is with some distance that we learned about Bill C-9 and part 17.
Overall, with regard to the principles of the bill, the Desjardins Group always welcomes, and will always welcome, legislative developments that seek to promote and stimulate the development of financial cooperatives in Canada. To that end, the Desjardins movement sees something very positive in this bill. It is no doubt a first step. Now, it is important to note that the Desjardins Group, historically speaking, over a hundred years ago, had already taken steps to put in place a federal legislative framework, which was not possible back then, despite repeated attempts. Currently, the Desjardins Group is fully satisfied with the provincial legislative framework within which it operates and which allows it to meet its demands and to develop.
One final point, particularly with regard to Bill C-9, two elements deserve closer examination, in our opinion. The first point was mentioned by Mr. Béland: specifically, the possibility of joining forces within a kind of federation, which is not only allowed but also mandatory in Quebec, and which allows a decentralized group to create a larger entity — which is in no way set out in this federal bill.
Another important element that we see in Bill C-9 concerns the reserves, which, under the bill, are shared. This means that a cooperative that obtained a continuance under federal legislation could either dissolve or become a charter bank and could then have its reserves shared amongst the members. This is in opposition to the approach adopted by the Desjardins Group; we believe that it is even contrary to the spirit of a cooperative and would no doubt lead to its dissolution or weakening.
In conclusion, the bill may be a positive first step, but certainly does not respond to the needs and hopes of the Desjardins Group.
The Chair: Thank you very much, Mr. Brun. You said that you did not call for the bill, but were you consulted during the drafting of the bill?
Mr. Brun: No, we were not consulted, either formally or otherwise. We had no meeting in which to say what our perception of such a bill on cooperative banks would be or in what way we would deal with the situation.
The Chair: Thank you. Interesting. I will begin with a senator from New Brunswick, Senator Ringuette.
Senator Ringuette: Thank you very much, Mr. Brun and Mr. Béland. Mr. Béland, I must tell you that I was quite young when I started to hear about your achievements. That said, I want to come back to your comments earlier, as well as to various comments that we heard during testimony this morning, in this very room, that would be cause for some concern.
Bill C-9 will allow a non-member shareholder to obtain the list of members in order to lobby them — for what purpose, no one knows. There is no delegation of power as exists in the Privacy Act, with regard to these member lists. In addition, we were not able to find out who was responsible for telling that shareholder, who would likely be poaching, whether they can have the member lists for lobbying purposes or not. There is no such provision.
I am also extremely disappointed that the largest cooperative in Canada, which is indeed the Desjardins Group network of cooperatives, was not at all consulted before the implementation of such a bill. What do you think of that?
First, I would like to also note another fact that we were told this morning, that this would allow banks to operate interprovincially and internationally — these new hybrid banks or hybrid cooperatives, we no longer know what to call them, and I think that they may not know either.
Mr. Béland: Thank you for your comments — I do not know whether there was a question in there. In my opinion, I find it quite surprising that there was no information session or meeting to ask us what we thought. Nevertheless, the Desjardins Group has existed for 110 years. I was president for 13 years, and I always had an excellent relationship with the presidents of centres in other provinces, in all the provinces with credit unions or cooperatives in other sectors. There are various provisions in this omnibus bill that allow existing cooperatives to become federal credit unions, as I learned by accident.
Last week, someone called me to ask whether I had heard about that. I said no. I sought information from Desjardins, and they told me about this rumour. I was quite surprised.
There are other issues that confirm the fact that this bill was drafted hastily. There are so many questions. What about the deposit insurance board? Shareable reserves are extremely dangerous because they would eliminate the ability of cooperatives to remain sustainable.
Human greed being what it is, imagine if Desjardins had $13 billion in reserves. It would be tempting for members to separate that $13 billion minus the $5 million in capitalization and slide that money over to the new bank. That is why the cooperative principle is clear.
When a cooperative wants to liquidate its assets, it must transfer its reserve funds to another cooperative. If there are none, it can transfer them to the state. It would be unfair to share that money with people because they are not the ones who amassed those funds; they came from former members who gave up their patronage allocation or share in the profits. These people wanted to ensure a stronger capital base for their company.
By dividing all those billions, the current generation would be thanking the former members, and in the cooperative world, such a clause is not allowed. It would be an incredible injustice. All that proves that the bill was drafted hastily.
Mr. Brun: I think it is important to understand the context. We can say that it is unacceptable to the extent that the Desjardins Group was not involved.
The bill clearly does not respond to a request by the Desjardins Group. Based on our information, the cooperatives in Western Canada, based on their geographic location and position, are the ones who fought for this bill, which, in our opinion, is much more in line with the kind of cooperative legislation that we see in Ontario or in the other provinces.
In no way at all does the bill correspond to the Desjardins Group structure. That is why it has no interest to us.
Senator Ringuette: I would like to come back to the testimony we heard this morning. Someone said that a shareholder who was not a member of this new federal cooperative entity could infiltrate it. This morning, the following question was asked: "Would you be afraid that other chartered banks, which are not members, might buy shares and use the member lists for marketing purposes?"
For the past three years, I have defended the issue of credit card and debit card fees, and I can assure you that, with regard to marketing, the banks will stop at nothing. I am concerned for the smaller cooperatives with fewer members. I fear there may be a movement towards acquisitions within this new regional centre and that the cooperatives will have to compete with new giant cooperatives.
Senator Murray: Mr. Brun, what would be the purpose of having such a federal legislative framework if it is not what is set out in Bill C-9, which is to ensure that cooperatives can do business in the other provinces and provide banking services?
Mr. Brun: Obviously, I keep coming back to my preliminary comment, which is that the Desjardins Group is still comfortable with the current legislative framework. One of the advantages of federal legislation is the ability to engage in transborder trade between the provinces. But some characteristics applicable to Desjardins Group are quite simply inalienable. We also talked about reserve funds and the creation of a federation, which are essential elements.
Senator Murray: Would it be preferable to propose such amendments to the Cooperatives Act?
Mr. Brun: Yes. I believe that cooperative groups would have been better served by a different legislative framework in that case. That is why we are strongly encouraging any legislative developments that may occur, but they should happen within a framework that respects the unique nature of cooperatives, which is sometimes irreconcilable with operations found strictly within the Bank Act.
Senator Murray: Mr. Béland seems to oppose the bill. Are you opposed to it?
Mr. Brun: We are not opposed to the bill. On the contrary, we see it as a first step allowing for future development. The future will tell us whether it benefits development.
Senator Murray: Mr. Béland, this morning, to the great surprise of many members of this committee, it was mentioned that someone who was not a member of a cooperative could purchase preferred shares up to 20 per cent. How does this fit with the principle that cooperatives belong to their members?
Mr. Béland: A preferred share is not a voting share. Whether we are talking about credit unions or commercial cooperatives, they are companies that need funding and capital. The issue is not to give preferred shareholders the power to make decisions. That is the major difference.
Over the past 200 years, the cooperative movement has sought to instil the principle of equality, the democratic principle, one person one vote. All the better if people say that they can do more than simply being a member and voting, that they can lend money to their credit union so it can operate.
There is nothing anti-cooperative about that. It would be anti-cooperative if the Desjardins Group agreed with that and gave the right to vote to shareholders, as the bill seeks to do. In so doing, we would be contradicting the very foundation of the cooperative movement, the principle of equality that ensures that democracy rules and that the minority does not dominate the majority because it holds the capital. That is what the cooperative movement has been fighting for the past 200 years.
Senator Murray: So my holding 20 per cent of preferred shares would not mean that I would have more influence?
Mr. Béland: Yes, clearly that would give you more influence, but I do not know many cooperatives where someone holds 20 per cent of all preferred shares. I am not familiar with any.
Senator Chaput: Welcome gentlemen, especially Mr. Béland. You are also very well known in Manitoba and well respected. When you were with the Desjardins Group, you never hesitated to support the cooperative movement in Manitoba or to share your expertise and services.
I headed the Manitoba credit union deposit insurance corporation for a number of years. I know just how much you supported the network and insisted on the importance of a reserve to ensure the financial health of our institutions. I find it unfortunate that you were not consulted since you have been part of the Desjardins Group for a very long time.
Are there federal credit unions in the United States? Have you heard of any, and, if so, what are the differences between what exists in the U.S. and what is being proposed in Canada?
Mr. Béland: There are credit unions under state jurisdiction. There are also some under federal jurisdiction. However, credit unions in the United States are parish credit unions, somewhat similar to our credit unions. The common link between the members is the location or municipality, a bit like with Desjardins. But the American credit union act is, in my opinion — and it has been a few months since I have looked at it — largely based on the International Cooperative Alliance's principles, because the Americans have a very strong presence within the International Cooperative Alliance.
Senator Chaput: That is not the model suggested in the current bill?
Mr. Béland: No, because that would mean that they would be trying to compete with huge banks even if some of them have been hard-hit for some time. Credit unions are not large. They are really there to serve a local community. That is their role.
To come back to Manitoba — and perhaps this will complete the answer to Senator Murray's question — Desjardins Group's current structure has not prevented it from affiliating with francophone cooperatives in New Brunswick or Ontario and, now, not only with francophone cooperatives but also with anglophone ones.
This has not prevented it from affiliating with cooperatives in Manitoba, nor from setting up a central cooperative office in Toronto, which no longer exists because it is no longer needed. But it was there for a number of years.
The federation is not a local cooperative. It can equip itself with instruments, corporations, subsidiaries to bridge the gap with the traditional system. We cannot live in a bubble. It is essential to establish ties with the traditional system, which we have done with the central cooperative, for example, which operates in international markets. We borrow billions of dollars on the international markets.
There is no need to think that it is absolutely essential to turn our local cooperatives into hybrids, to remove their cooperativeness to some extent, to bring in more capital and to give power to that capital on the pretext that doing so is essential in order to get capital from global markets. My experience has been the opposite.
Mr. Brun: We often come back to the structure set out in federal legislation. This is much closer to Ontario's legislative model.
With regard to the bill, and the question asked by Senator Murray, who asked if we were in favour of it, yes, but it is in response to what may be a more timely need coming from a western credit union. That is why we are calling it a first step. It will have to be reworked if we want it to become the future.
Mr. Béland: My wish is that it not be referred to as a cooperative, because that will create confusion.
The Chair: Even with the word "federal."
Mr. Béland: The word adds something, but it is not because it is federal that it is a cooperative. It is both cooperative and federal.
[English]
Senator Runciman: I was seeking clarification, which Senator Dickson has just helped me with enormously. I was somewhat confused by the presentations. I missed some of Mr. Béland's initial comments. It seems to be a point-counterpoint submission here this evening.
Mr. Brun, you represent Desjardins this evening. I think you indicated clearly that Desjardins is in full support of the legislation. You think it is a good first step. Essentially, does that characterize your position?
Mr. Brun: It is a good first step.
Senator Murray: That is not "full support."
Senator Runciman: I just wanted clarification.
The Chair: I hope we clarified that for you.
Senator Dickson: I was looking at the minutes of the Finance Committee in the house on Tuesday, May 11, 2010. At that time, Mr. Hubert Thibault, the Vice-President, Corporate Affairs, of Desjardins Group Management, appeared. I will read a paragraph from his evidence, which corroborates what you are saying that you are in principle in full support of this bill.
It reads:
The Mouvement Desjardins hails the initiative that has been tabled before you to permit the recognition and creation of credit unions and caisses populaires under federal jurisdiction. The Mouvement Desjardins understands that it responds — perhaps not completely, which is virtually impossible — to wishes expressed by the credit union system, mainly outside Quebec. Those wishes have been expressed on numerous occasions over the past 15, 20, if not even 30 years. In that sense, the Mouvement Desjardins hails the initiative that is before you today.
It goes on. I could read the whole thing, but you are very familiar no doubt with that statement.
Coming to what Mr. Béland said, the one suggestion Desjardins makes is the use of the term "bank," that is against the philosophy of the credit union movement. I am a bit familiar with the credit union movement, coming from Atlantic Canada, Nova Scotia, which has many credit unions.
A suggested amendment would be, whether now or at some time in the future, they would be able to use the name "federal credit cooperatives" to reflect the cooperative nature rather than the philosophy of the bank.
I understand that, and I appreciate the comments of Mr. Thibault:
Thus, a simple amendment could enable the Mouvement Desjardins to better discharge its obligations and better serve its cooperative members"
— if that simple amendment had been made.
Would you comment on that? Would you like to disagree or agree? It seems to corroborate what you are saying.
[Translation]
Mr. Brun: When the Desjardins Group talks about supporting the bill, it is really saying it welcomes it. We welcome this legislative initiative. The Desjardins Group wants to develop a viable and beneficial alternative to the services offered by the banks. If the bill can create a viable alternative, we would be delighted to see that happen and to find aspects having to do with that.
However, the Desjardins Group is very comfortable within its legislative framework, and this bill is not in line with its expectations or hopes. That is why we did not really develop an interest in it. And that also probably explains why we were not consulted either.
As for the issue of the name, clearly the Desjardins Group could be interested in owning a chartered bank. At that point, it truly would be a bank, and not a cooperative bank as presented in the bill.
Mr. Béland: But there would be resistance on our end.
Senator Ringuette: With good reason.
Mr. Béland: I would not like to see that. Unless we had legislation on cooperative banks as they do in France.
In France, they have legislation on cooperative banks and legislation on traditional banks.
However, I know Desjardins rather well, and I cannot see them agreeing to, as you were saying, issue shares, shares with voting rights and reserve-sharing rights. I do not believe that the members of Desjardins would ever agree to that.
It may be a first step, but there will be some fine-tuning and adjustments required.
[English]
Senator Dickson: Following your testimony and Mr. Thibault's testimony back in May, do you support these sections of Bill C-9 creating federally regulated co-ops or banking institutions?
[Translation]
Mr. Brun: Yes.
[English]
Senator Marshall: Mr. Brun, we were saying this is a good first step. Do you have any suggestions as to the second step?
[Translation]
Mr. Brun: I am thinking of the main comments and criticisms that have been heard regarding this bill, particularly on the possibility of incorporating and forming a federation. Having some guidelines as well, when you talk about the reserves, would be a primary concern because, when you want to promote the creation of an alternative to the banks, you also want to ensure that alternative will not transform itself into a chartered bank, because there could be an incentive to sharing the reserves. Certain components absolutely must be corrected in order to muster some interest.
Senator Chaput: In your opinion, Mr. Brun, is there a need for this kind of alternative?
Mr. Brun: Yes, clearly, there is a need for an alternative to the banks and to be able to engage in interprovincial trade. We can see it, some credit unions have reached a certain size and feel the need — I cannot speak for them, but they are in fact the ones who took the initiative to take steps and to ask for certain changes.
The Desjardins Group, as I mentioned during our presentation, developed within its legislative framework, a provincial framework, and it is currently very comfortable in that regard; it is able to develop, it continues to do so and it intends to continue to do so.
Senator Chaput: If I understand correctly, this would be less of a need for Desjardins than for the other cooperatives across Canada.
Mr. Brun: Absolutely.
Mr. Béland: The difference is that the request you are studying comes from a local cooperative. It is quite different. It is clear that the local cooperative does not have the means to engage in interprovincial trade. It is not a central bank, nor is it a federation. Desjardins solved this problem by telling the cooperatives: It is not you who does that, but us — the federation will do that on your behalf.
Whereas here, the request comes from a local cooperative, and if we allow that, perhaps all of the Desjardins cooperatives will conclude that they no longer need their federation, that they have all of the powers necessary to do business across Canada. We must take that seriously.
[English]
Senator Wallace: Mr. Béland, Mr. Brun's response to Senator Chaput reminds me of what I understand to be the rationale behind the suggestion of the creation of this federal credit union. Mr. Brun believes that such an institution would promote continued growth and competitiveness in the financial sector; enhance financial stability; allow credit unions to become competitive on a national scale with broadened services; help the credit unions attract new members; and improve services to existing members.
You are looking at how this would impact your credit union. However, all of this is really about the consumer, is it not? It is how does it ultimately impact the choices and the stability to consumers?
Would you not agree that this bill, or the creation of federally incorporated credit unions, would achieve some of those purposes, that it would help credit unions to attract new members, improve services and create competitiveness? Would you not agree that it has that potential to cause all or some of that to happen?
Mr. Béland: Yes, with one condition: That all local credit unions do the same thing. In this case, one credit union gets all of the power; it has 400,000 members, I believe.
[Translation]
That does not reflect the image of a local cooperative: 400,000 members who are asking for this charter. Do we want to create a credit union in each of the provinces? That is something else all together. These are all questions that have yet to be answered.
The legislation deals with the local level, whereas Desjardins works on a provincial level, with a federation that includes all of the cooperatives, which allows for good development because they are working together, and not locally. When I think of consumers, that is precisely what I think of: some areas will be well-served whereas others will not. That is not a good situation.
In Quebec, we have managed to provide services across the province, even in the most remote places, thanks to the federation and thanks to cooperation. When I see that the bill refers only to local cooperatives, that worries me.
[English]
Senator Wallace: That would be a matter of choice, would it not? Through this bill there would be new choices available to consumers and they will make the choice whether they prefer to deal with larger, hybrid credit unions or smaller ones.
Mr. Béland: Sure.
Senator Wallace: Every day, we make our decisions based on many choices. This will provide consumers with extra choices. Is that correct.
[Translation]
Mr. Béland: The customer is always right, even in our business.
[English]
Senator Wallace: Exactly, or the voter.
[Translation]
The Chair: Perhaps, especially in your business.
Senator Ringuette: I would like to come back to the discussion we had this morning with David Phillips of the Credit Union Central of Canada. He told us that his federation was surprised to find this in Bill C-9, and in the framework plan of the Bank Act.
He was looking mostly at the Cooperatives Act, the federal cooperative movement to introduce or to have bigger options. Had the expertise of the Desjardins Group been consulted, this would not be included in the 900-page omnibus budget bill. I doubt that the Mouvement des caisses populaires acadiennes, in New Brunswick, was consulted in the process. Had there been any consultation, we would probably see a bill amending the federal cooperative legislation on the horizon. That would make much more sense in terms of meeting the potentially growing needs of the cooperative movement. We also have federal cooperatives in other sectors. I did not want to leave you with the impression that what the credit unions are facing in this bill was exactly what they wanted. I wanted to clarify that and tell you that it does not correspond to the aspirations, at this point, of the central and western cousins in this country.
Mr. Béland: That confirms there is work that remains to be done.
Senator Ringuette: A lot of work.
Mr. Brun: They told us that this was not necessarily the desired approach, and I am glad that they mentioned it.
For us, these requests were made to satisfy certain needs of the western credit unions. If their needs were not fully met, that is unfortunate. We did so out of solidarity. Sometimes, one might sense some competition between the cooperatives and the caisses populaires. On the contrary, we support everything that may promote the movement's development, including in the West. When they made demands, they got this bill, which we support, but we are aware of the fact that it does not fully meet their expectations.
Senator Ringuette: Exactly. Thank you.
The Chair: No other senator has asked for the floor. I sincerely thank you for being here with us this evening and for explaining Parts 17 of 24 in Bill C-9. We have a lot of work left to do. That concludes today's meeting.
(The committee adjourned.)