Canada’s financial services industry has mixed feelings for Thursday’s federal budget.

The federal budget charts a prudent course to support recovery of the Canadian economy and bring public finances back into balance, the Investment Industry Association of Canada said.

The IIAC called the government’s plan to reduce the $54 billion deficit to near fiscal balance in five years “realistic”.

“The measures in the Extraordinary Financing Framework previously introduced by government were timely and effective and have contributed significantly to improved credit and economic conditions,” said Ian Russell, president and CEO, IIAC.

The IIAC is disappointed the federal government has not introduced additional incentives to stimulate investor spending, especially in the small business sector.

“While the economic recovery continues to take shape, conditions have not yet normalized and additional incentives would be helpful to encourage private sector demand,” Russell said.

CBA reaction mixed

The Canadian Bankers Association welcomed the federal government’s continued commitment to reduce corporate tax rates for Canadian businesses big and small.

However, the budget also proposed certain measures and additional regulations that raise concerns for the banking industry.

“On the one hand, we’re pleased to see measures that will help all businesses and contribute to Canada’s long-term economic growth,” said Nancy Hughes Anthony, president and CEO, Canadian Bankers Association. “Unfortunately, there are some proposed new measures that were introduced today that lead us to question whether they will have the intended benefits for consumers and bank customers.”

In particular, the CBA will be discussing with the government to ensure that several proposed measures are in the best interest of all consumers, including:

• reducing the maximum cheque hold period from seven to four days;
• prohibiting negative option billing in the financial sector; and
• standardizing the calculation and disclosure of mortgage prepayment penalties.

On the budget’s proposal to create a federal framework for credit unions, the CBA said it
“welcomes new competition into the marketplace, but at the same time it is essential that any new type of national financial institution operate on a level playing field with other players in the marketplace.”

The CBA is especially concerned that Canada’s “robust” capital and regulatory standards be maintained for all federally-regulated institutions

“This proposal represents a major change to the federal financial services legislative framework and the banking industry will need to work with the government to review the details carefully,” it added.

CLHIA welcome jobs and growth budget initiatives

The Canadian life and health insurance industry welcomed the government’s “Jobs and Growth” budget.

“We believe this budget reflects a balanced, responsible approach to the road to recovery,” said Frank Swedlove, president of the Canadian Life and Health Insurance Association.

“The life and health insurance industry is committed to working actively with the government in facilitating a stronger and more efficient retirement system, in reviewing Canada’s payments system and in considering changes to the dispute resolution framework,” added Swedlove.

CVCA pleased with decision to remove foreign investment barrier

Canada’s Venture Capital and Private Equity Association (CVCA) applauded the removal of the Section 116 obstacle to foreign investment in the venture capital and private equity industry as announced in Thursday’s federal budget.

“Many CVCA members, as well as a large number of individuals and organizations, have been actively encouraging the federal government to eliminate this section of the Income Tax Act which has had a dampening effect on cross-border venture capital and private equity transactions. Its removal provides an important signal to foreign investors that Canada welcomes their contributions to growing companies and employment,” said Gregory Smith, president of the CVCA.

The CVCA also welcomed the budget’s focus on innovation. In particular, the CVCA is looking forward to participating in the comprehensive review of federal support for R & D and in particular the commercialization of that research that was announced in the budget.

“We share the perspective that federal R & D support must be examined with a view to improving its contribution to innovation and to economic opportunities for business,” the CVCA said.

FEI worried about burgeoning deficit

Financial Executives International Canada (FEI Canada), the association for Canada’s senior financial leaders, said it was encouraged by federal government’s renewed focus on spending control yet concerned by the burgeoning deficit.

“While we applaud the government’s move to start curbing the burgeoning deficit, we are concerned with the lack of specificity on how the deficit is going to be reversed,” said Michael Conway, chief executive and national president, FEI Canada. “It is critical that Canada continue to maintain good fiscal management that will help to ensure our ability to withstand future downturns.”

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