Introduction

The Canadian Bankers Association is pleased to provide its comments with respect to the 2014 Ontario Pre-Budget Consultations.

The Canadian Bankers Association works on behalf of 59 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 275,000 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.

In 2013, Canada’s banks were once again recognized as being the strongest and soundest in the world – the sixth consecutive year that the World Economic Forum has ranked the Canadian banking industry ahead of its international peers. The global recognition of our domestic banking industry has generated a strong sense of pride in the way we bank in Canada. While other major economies are working towards strengthening their respective financial systems through the implementation of new regulatory standards, Canadians recognize the value that their banks provide to them and to the broader economy. Canadians have confidence in their financial institution – in their day-to-day banking as individuals, as business owners, investors, or planning for a secure retirement.

A strong banking industry is integral to the Ontario economy as it is an important hub of Canada’s financial services sector. In 2012, the banking industry accounted for 4.4 per cent of the provincial economy, contributing approximately $30 billion to the gross domestic product. Banks directly employ almost 160,000 people in Ontario in their headquarters, regional offices and in 2,700 branches across the province. Banks also support the economy by acting as a key source of credit to help businesses grow and thrive in Ontario. As of September 2013, total authorized credit to Ontario businesses totaled $505.5 billion, of which $75.3 billion was for small and medium-sized enterprises (SMEs).

Our submission offers the banking industry’s views and recommendations on a number of important issues to help improve the lives of Ontarians, including a competitive tax policy, Pooled Registered Pension Plans, the cooperative capital markets regulatory system, registered disabilities savings plans, and financial literacy.

Competitive Tax Environment

The Government of Ontario has made significant strides to improving the competitiveness of the provincial tax system by reducing the corporate income tax rate (CIT rate) from 14% in 2009 to 11.5% as it stands today. While improvements have clearly been made, the CBA believes the provincial government can take further steps to improve the competitiveness of its tax system in order to promote economic growth and job creation in the province.

We applaud the government’s efforts to reduce its deficit through the careful management of spending and are pleased it is on track to eliminate the deficit by 2017-2018. Since a balanced budget lays the groundwork for a strong economy, the CBA has been supportive of governments at all levels in their efforts to eliminate deficits. In that regard, we agree with the Minister of Finance that stronger economic growth is the most effective path towards balancing the budget. A competitive tax environment stimulates growth by providing a strong incentive for businesses to invest and innovate in Ontario rather than other jurisdictions. More investment and innovation in Ontario facilitates job creation leading to a broader tax base. And with greater economic activity the government will benefit from increased revenues to fund important investments in health care, education and infrastructure to improve Ontario’s standard of living. This is particularly true in times of economic uncertainty when it is important that governments maintain a competitive tax system despite fiscal challenges.

Following Budget 2012, we had expressed concerns with the announced delay in the planned corporate income tax rate reduction to 10 per cent on July 1, 2013. In that announcement, the government committed to resuming the corporate income tax rate reduction schedule once the budget was balanced. We believe that the government should remain committed to tax competitiveness since this is one of the keys to sustainably making the economy more productive. Now that Ontario is on track to balance its budget, we would encourage the government to announce a schedule for reducing the corporate income tax rate to 10 per cent according to its previous commitment. This would provide greater certainty to businesses that require significant lead time to develop their investment plans.

We also appreciate the steps taken by the Ontario government in recent years to eliminate capital taxes, particularly those on financial institutions. We continue to be concerned however 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 and economic stimulus measures closer to home. Each dollar of capital held by a financial institution supports many dollars of financing to businesses in other sectors of the economy. Hence every dollar of capital directly lost to taxation at the provincial level also reduces, by a significant multiple, the amount of credit available to businesses across Canada.

Recommendations:

The government should announce a schedule for returning to its commitment to reduce the corporate income tax rate to 10 per cent, thereby providing certainty to businesses to make plans for investment in the province and stimulate job creation.

Continue to support the elimination of the capital taxes that target financial institutions.

Pooled Registered Pension Plans

The CBA commends the Ontario government for moving ahead with a consultation on a framework to allow Pooled Registered Pension Plans (PRPPs) to be offered in Ontario, as agreed by federal, provincial and territorial finance ministers in 2010. Ontario’s commitment in this area is vital for creating a truly national solution that meets the needs of many Canadians who have no access to a workplace pension due to the cost, complexity and risk associated with establishing workplace pension plans.

The CBA participated in the government’s recent public consultation on a PRPP policy framework and shared our views on how the PRPP could be structured to meet the government’s policy goals. Overall, we believe that the success of the PRPP in Ontario and across Canada is best achieved by measures that encourage participation so that the benefits of scale are fully realized. Investment and administration costs will decrease as the number of participants (both employers and individuals), and the total assets under management, increase. Accordingly, the regulatory regime must not impose costs in excess of what is required to meet the needs of employees and protect their financial interests. This means that, to the extent possible, PRPP legislation should be harmonized on a national basis to reduce the costs and complexity of compliance.

Banks are well-placed to deliver a low-cost savings vehicle given their relationships with almost 1.6 million SMEs across Canada, as well as significant experience in financial and risk management. In particular, the PRPP can complement the array of business accounts, financing options, payment and payroll services, and SME tools and resources that banks offer and which help support the success of SMEs. We believe it is important to move the PRPP file forward on a national level and not allow it to be delayed by continuing debates about other elements of Canada’s retirement savings system.

Recommendation:

Ontario should enact PRPP legislation to expand pension plan coverage for individuals in order to offer an additional vehicle for retirement savings. The framework should ensure harmonization with the federal PRPP framework, avoid imposing undue obligations and costs on employers and administrators, and allow banks to be PRPP administrators.

Registered Disability Savings Plans

The federal government introduced Registered Disability Savings Plans (RDSPs) legislation in 2008 to assist in providing long-term financial security for individuals with disabilities. The legislation combines elements of tax-deferred savings with an assistance program providing grant and bond payments to individuals. The plan may be opened by the beneficiary or by a parent if the plan is opened for a minor child. The plan holder is responsible for the operation of the plan and makes decisions regarding contributions, investments and withdrawals.

In certain instances, problems have been 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.

The CBA has been an active participant in the Law Commission of Ontario’s consultation on the question of legal representation in the context of an RDSP. We are currently in the process of preparing a submission for that consultation process to provide a more detailed report of the industry’s views. The banking industry has been and will continue to be a very strong supporter of the RDSP program and any comments we provide will be made in efforts to ensure the continued effectiveness of the RDSP.

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.

A Cooperative Approach to Securities Regulation

The CBA congratulates the Ontario government for its ongoing leadership and commitment to the creation of an efficient national securities regulatory framework. The joint agreement with British Columbia and the federal government to establish the cooperative capital markets regulatory system is a significant step forward to improving investor protection, providing greater efficiencies in capital markets, and reducing the cost of raising capital. For many years, the CBA has advocated for efficient securities regulation through a national framework. We appreciate the leadership shown by the three governments to address the current fragmented system. It remains important for all provinces and territories to participate in this cooperative approach to truly achieve the most streamlined and efficient regulatory system possible. The banking industry is committed to working with all governments in Canada and will continue to encourage other provinces to join in the discussions to establish the cooperative capital markets regulator.

Financial Literacy

The CBA commends the Government of Ontario for its commitment to providing financial literacy to young people in the classroom. Financial literacy is a priority for the CBA and its members. 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. For its part, the CBA has provided financial literacy to young people for over 13 years through its Your Money Students seminar program. In Ontario, local bankers have volunteered to deliver close to 2,800 seminars to 78,000 young people over that time, teaching them the basics on budgeting, saving, investing, using credit wisely and fraud prevention. The CBA is also currently developing a program for seniors to assist those who are entering retirement in managing their finances and avoiding financial abuse and fraud. The Your Money Seniors program will launch later in 2014.

Conclusion

We encourage the Government of Ontario to implement public policies that will foster job creation, maintain Ontario’s position as an attractive destination for business investment and ensure that residents have a sufficient retirement income. As a major contributor to Ontario’s economy and the well-being of Ontarians, the banking industry believes the recommendations contained herein can help the Ontario government achieve these objectives.