Introduction

The Canadian Bankers Association is pleased to participate in the Government of Ontario’s pre-budget consultations.

The Canadian Bankers Association (CBA) works on behalf of 60 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 280,000 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The Association also promotes financial literacy to help Canadians make informed financial decisions and works with banks and law enforcement to help protect customers against financial crime and promote fraud awareness.

The financial services sector in Ontario is an essential contributor to the province’s economic growth and well-being. The government continues to make the promotion of the financial services sector in Ontario a priority and the banking industry looks forward to continue working with the government on this front.

Banks are leading taxpayers, progressive employers, major purchasers of goods and services from suppliers, as well as good corporate citizens. Banks are an important economic driver in Ontario, helping families buy a home and save for retirement and helping small businesses to grow and thrive. Ultimately, strong and stable banks benefit all Ontarians whether as customers, business owners, employees, taxpayers, or investors.

This submission offers the banking industry’s views and recommendations on a number of important issues, including competitive taxation, provincially-regulated financial institutions, retirement savings, registered disability savings plans, and financial literacy.

Competitive Taxation

As the CBA has addressed in past submissions, the industry is supportive of the Government of Ontario’s commitment to eliminating the provincial deficit by 2017-2018. A balanced budget lays the groundwork for a strong economy and the CBA supports governments at all levels in those efforts. At the same time, the CBA believes that governments should also pursue a competitive tax regime for business.

Ontario had begun taking steps in the right direction by introducing a corporate income tax reduction schedule in 2009, with an anticipated rate of 10% by July 2013. The government subsequently announced a freeze in those planned reductions in 2012 in order to address its fiscal challenges. The CBA believes it is important for the government to return as soon as possible to its original plan to reduce the CIT rate to 10%.

In the face of an uncertain economic climate, a competitive tax regime becomes even more important. Increasing taxes on business as a mechanism to increase revenue is counterproductive to the intended objective of balancing the budget and to the goal of having a robust economy. A competitive tax rate stimulates growth by providing a strong incentive for businesses to invest and grow in Ontario. More investment and innovation in Ontario facilitates job creation which naturally leads to a broader tax base. With greater economic activity, the government can more readily afford to fund important investments in health care, education and infrastructure to improve Ontario’s standard of living.

The banking industry appreciates the steps taken by the Ontario government in recent years to eliminate capital taxes on financial institutions. We continue to be concerned with recent measures and proposals in some provinces to increase or possibly re-introduce these counterproductive taxes. Taxing the capital of financial institutions undermines international efforts to strengthen the financial system. Each dollar of capital held by a financial institution supports many dollars of financing to businesses in other sectors of the economy. Taxing capital reduces the amount of credit available to businesses. With growth and investment a top priority, any measure that could limit the credit available to businesses is counterproductive.

Recommendation:

  • The government should return to its plan to lower the provincial CIT rate to 10% in order to improve Ontario’s competitive advantage and stimulate economic growth. 

Provincially-Regulated Financial Institutions

The CBA believes that a strong financial system, based on sound internal risk management and an effective regulatory framework is vital to the Canadian economy. The credit union system is an important part of Canada’s dynamic financial sector, contributing to the choice and competition available to consumers. It is important to note however, that credit unions are increasingly evolving into complex financial institutions that offer a wide array of products and services that resemble those of banks. Ontario’s credit unions are also becoming larger through several mergers and acquisitions in recent years.

As the global financial crisis demonstrated, disruption to the financial sector can spread quickly to all parts of the financial sector. As a result, it is important that all financial institutions, credit unions as well as banks, operate within a robust prudential policy, supervisory and regulatory framework to ensure the continued safety and soundness of Canada’s financial system as a whole. Such a robust prudential policy, supervisory and regulatory framework would include, for example, the large number of initiatives that have been implemented by the federal government and its financial agencies since the global financial crisis. These initiatives include Basel III reforms on capital adequacy and liquidity guidelines, enhanced disclosure, mortgage underwriting practices, corporate governance, and recovery and resolution planning.

Additionally, the deposit insurance coverage for credit unions should be harmonized with that of the Canadian Deposit Insurance Corporation (CDIC). Although Ontario’s coverage for insured deposits is similar to that provided by CDIC, deposits in certain registered accounts are insured without limit. Unlimited deposit insurance attracts not only large and less stable deposits but can also lead to moral hazard in the behaviour of management. The Government of Ontario should resist calls to increase its limit for deposit insurance coverage.

Recommendations:

  • Credit unions should operate within a robust prudential policy, supervisory and regulatory framework harmonized with that of the regime for federally regulated financial institutions.
  • Deposit insurance coverage for credit unions should be harmonized with that of the CDIC.

Retirement Savings

The CBA has long been supportive of the goal of promoting adequate retirement income security for Canadians and has engaged in research and advocacy over the years to support this goal. Banks are widely recognized as leaders in Canada in providing their employees with a competitive and comprehensive package of compensation and benefit programs, including generous defined benefit (DB) and defined contribution (DC) pension plans. While banks’ employee retirement strategies vary among institutions and, in some cases, among subsidiaries within each bank financial group, the objective is always the same – to ensure that employees are given resources to help adequately finance their retirement.

It is within this context that we are concerned about the recent proposal to exclude DC plans from the definition of “comparable plans” in the proposed design of the Ontario Retirement Pension Plan (ORPP). In attempting to target the segment of the population that do not participate in workplace pension plans, the ORPP has also captured workers of all incomes that are participating in DC plans.

Well-designed DC plans can appropriately assist employees in meeting their retirement needs. Such well-designed DC plans would include a combination of features such as:

  • A minimum employer contribution rate;
  • An employer matching program that creates an incentive for employees to save;
  • Targeted replacement rates;
  • An advisory and educational component;
  • An appropriate investment menu accounting for longevity and investment risks;
  • Cost-effective administration; and,
  • Estate planning flexibility (including access to acquire an annuity). Employees that are provided with a comprehensive package of compensation and benefit programs, including generous DC plans, are not the identified segment of the population that is in need of augmented retirement savings. Since the objective of the ORPP is to target those most at risk of undersaving, staff of bank subsidiaries that benefit from generous compensation and benefit packages should not be captured by the proposed design of the ORPP.

The CBA would also like to ensure that careful consideration is given to the potential impact of the ORPP on other retirement savings vehicles, in particular Pooled Registered Pension Plans (PRPPs), but also individual and group retirement savings plans, and deferred profit sharing plans. The CBA believes that it is essential to ensure that all Ontarians will continue to have access to the diversity of retirement savings options currently available to help prepare for their retirement.

Recommendations:

  • Include defined contribution plans in the definition of a “comparable plan” thereby exempting employers with well-designed DC plans from having to participate in the ORPP.
  • Ensure that other retirement savings options and the ORPP can effectively work together to augment the retirement savings of Ontarians.
  • Continue with the adoption of a PRPP framework and ensure that it can complement the ORPP.

Registered Disability Savings Plans

The banking industry has been and will continue to be a very strong supporter of the Registered Disability Savings Plans (RDSP) program and any comments we provide are made in an effort to ensure the continued effectiveness of the RDSP. The federal government introduced RDSP legislation in 2008 to assist in providing long-term financial security for individuals with disabilities.

Problems were identified when the beneficiary of an RDSP is over the age of 18 and lacks capacity to enter into a contract due to the nature of his or her disability. Current rules effectively limit plan holders to only being the beneficiary’s legal representative. However, appointing legal representatives normally involves a lengthy and expensive court process to seek a declaration that the beneficiary is legally incompetent. Questions of appropriate legal representation in these cases are a matter of provincial and territorial responsibility. In 2012, the federal government enacted a temporary solution to allow adults with cognitive disabilities a better opportunity to participate in RDSPs by expanding the definition of who may be the plan holder. This temporary solution allowed qualifying family members to become the plan holder in situations where the individual’s ability to enter into a contract is in doubt. Since this change will cease to apply at the end of 2016, however, the federal government has sought to work with the provinces to implement a more standardized and streamlined process to better meet the needs of these individuals.

Recommendation:

  • We urge the Government of Ontario to continue working with the other provinces and the federal government to develop a harmonized and permanent solution to address the issue of legal representation for individuals seeking to establish an RDSP.

Financial Literacy

The CBA and its members are helping to strengthen the financial literacy of all Ontarians including working with schools across the province as the government continues to implement financial literacy in the classroom. For its part, the CBA has provided financial literacy programs to young people for over 14 years through its Your Money Students seminars. In Ontario, local bankers have volunteered to deliver close to 3,300 seminars to 95,000 young people over that time, teaching them the basics of budgeting, saving, investing, using credit wisely and fraud prevention. The CBA also launched a financial literacy program for seniors to assist those who are entering retirement in managing their finances and avoiding financial abuse and fraud.

Banks are an active and essential part of the daily life of most Canadians – 96 per cent of Canadians have an account with a financial institution, and millions turn to banks every day for services and advice to help them save, plan for retirement, start businesses and buy homes. As a result, banks already provide their customers and potential customers with a wealth of educational material, information, tools and services geared to helping them make the best financial choices.

Banks in Canada are also leaders in supporting financial literacy activities and initiatives in communities across Canada. There are many community organizations delivering financial literacy to vulnerable groups across Canada and many of these programs are supported by banks and individual bankers.

Recommendation:

  • The CBA supports the Government of Ontario’s commitment to strengthen the financial literacy of people in Ontario.

Conclusion

We encourage the Government of Ontario to implement public policies that will foster job creation and economic growth, reinforce the supervision and regulation of provincially regulated financial institutions, target retirement income initiatives, assist the disabled access savings vehicles and strengthen financial literacy. As a major contributor to Ontario’s economy and the well-being of Ontarians the banking industry believes the recommendations contained in this submission can help the Ontario government achieve these objectives.