The credit union system responded swiftly to the federal government's plans to remove credit unions’ unique tax deduction at the federal level.

Last week’s federal budget zeroed in on the extended small business deduction for credit unions.  The four decade old tax measure exists to give credit unions a competitive balance with banks, recognizing that credit unions do not have the same access to capital markets and instead build capital primarily from retained earnings.  Claiming to be increasing the “neutrality and fairness of the tax system,” the budget proposes to phase out the deduction over five years beginning in 2013.

On budget day, Canadian Central issued analysis and a press release, followed quickly by comments in the media by credit unions and Centrals.  The system’s concerns have also been echoed by opposition MPs that CU Nation advocates have met with in recent years (more on the opposition reaction below).

Next steps are already in the works.  Canadian Central, in consultation with the system, has communicated with the minister of finance to express our strong disagreement (more on that below).

Next week, credit union CEOs can expect to receive a financial survey about the deduction from Canadian Central. The data collected will form an essential part of our coming advocacy efforts, which will include Canadian Central pursuing a meeting with the finance minister to consider the full impact of this proposed change.

Once we have analyzed the data we plan to come back to CU Nation advocates with more structured messages and advocacy opportunities.  In the meantime, should you be contacted by your Member of Parliament, consider the following messages:

• The original purpose for the extended deduction still exists today.
• Credit unions are different than banks and this difference should be recognized in how both are taxed.
• We are examining what the full impact of what this will mean and plan to communicate this to the government.

This week Canadian Central CEO David Phillips wrote to the minister of finance about the proposed elimination of the deduction for credit unions.  The letter to Jim Flaherty calls upon the minister to meet with system representatives to discuss the full impact of the change.  This is an excerpt from the letter:

I am writing to express to you the strong disappointment and disagreement of Credit Union Central of Canada on behalf of our member Centrals and Canada’s 348 credit unions regarding the announcement in last week’s budget of the tax increase that will be applied to credit unions starting this year … The additional costs imposed on credit unions by the income tax increase will make it more difficult for credit unions to serve as an effective second tier of competition to the large Canadian commercial banks. Providing credit unions with access to a lower income tax rate is good policy for a government that seeks to encourage the growth of competitive alternatives to the large Canadian commercial banks.  We will be contacting your office with a view to inquiring about a date and time for [a meeting to discuss this tax change and to outline for you its impact on Canadian credit unions].

Since the budget was tabled, opposition MPs have been critical of the government’s plans to eliminate the extended small business deduction for credit unions.  Fourteen MPs have raised the issue in question period and in the budget debate.

Further, official opposition finance critic Peggy Nash (Parkdale-High Park, Ontario) included a specific reference to credit unions in the New Democrats’ amendment to the government’s budget motion.

During Hike the Hill and Hike the Hill at Home, credit union advocates have been building stronger relationships with their federal legislators.  Helping them to understand who we are and how we help their constituents each and every day.  Grassroots advocacy is a long game.  But without your advocacy and the great reputation of credit unions, we wouldn’t be able to count on the support we are seeing for our cause in the House of Commons.