Written Submission for the Pre-Budget Consultations in Advance of the Upcoming Federal Budget 2025

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FAQ on the Written Submission for the Pre-Budget Consultations in Advance of the Upcoming Federal Budget 2025

What is the Catalyst Community Finance Initiative proposing in its pre-budget submission?

The Catalyst Community Finance Initiative proposes three main recommendations in its pre-budget submission:

  1. Social Finance Ecosystem Building Program: This recommendation calls for $25 million per year over four years to support the capacity of social purpose organizations (SPOs) to access social finance.
  2. Community Reinvestment Act: This recommendation proposes implementing a Canadian version of the U.S. Community Reinvestment Act, encouraging financial institutions to meet the credit needs of underserved communities.
  3. Community Finance Leverage Strategy: This recommendation suggests creating a national fund, tax credits for equity investors, and tax relief for individual and corporate investors to bolster community finance organizations (CFOs).
How will the proposed Social Finance Ecosystem Building Program benefit Canadians?

This program builds on the successful ESDC Investment Readiness Program (IRP), aiming to further empower Social Purpose Organizations (SPOs) to tackle critical issues like affordable housing, healthcare, climate change, and economic opportunity. It will:

  • Enhance Investment Capacity: Providing investment readiness support for SPOs will enable them to attract private investment for social good initiatives.
  • Support Marginalized Groups: By prioritizing equity-deserving groups, the program promotes inclusivity and reduces social and economic disparities.
  • Drive Economic and Social Benefits: Strengthening SPOs contributes to community development, economic growth, and innovation across Canada.
What is the U.S. Community Reinvestment Act, and how can it be applied in Canada?

The U.S. Community Reinvestment Act incentivizes financial institutions to meet the credit needs of all communities, especially low- and moderate-income neighborhoods. By evaluating banks’ lending practices, it combats discriminatory practices and promotes financial inclusion.

In Canada, a similar act could:

  • Increase access to financial services for underserved communities.
  • Stimulate economic growth in underserved areas.
  • Promote transparency and accountability in the banking sector.
How does Catalyst propose to implement a Community Reinvestment Act in Canada?

Catalyst suggests a framework that includes:

  • Regular Evaluations: Financial institutions will be evaluated on their performance in serving the credit needs of all communities, with a focus on equity-deserving groups.
  • Transparency: Evaluation results will be publicly disclosed to promote accountability and encourage improvement.
  • Support for Community Finance Organizations: Banks will be incentivized to support community finance organizations that serve underserved communities.
What is the proposed National Fund for Community Finance Organizations, and how will it work?

This recommendation calls for a dedicated fund to provide sustainable financial support to community finance organizations (CFOs), enabling them to expand their reach and impact.

Key features include:

  • Initial capital of $500 million with provisions for annual appropriations.
  • Grants and low-interest loans to CFOs for operational support, capacity building, and direct lending to underserved communities.
How will the proposed tax credit program incentivize investment in Community Finance Organizations?

Modeled after the successful U.S. New Markets Tax Credit Program, the proposed program will:

  • Offer investors a 39% tax credit on their equity investment in CFOs, distributed over seven years.
  • Cap the total annual tax credit allocation at $300 million.
  • Implement a certification process for Community Finance Organizations to ensure accountability and effective use of funds.
How will the proposed tax relief program for individual and corporate investors work?

Inspired by the UK’s Community Investment Tax Relief (CITR) scheme, the program proposes:

  • 25% tax relief over five years for individuals and companies investing in accredited Community Finance Organizations (CFOs).
  • An annual limit of $200 million for total tax relief claims.
  • An accreditation process for CFOs to ensure high standards of accountability, transparency, and impact.