May 19, 2020

Canada shows signs of a positive shift in credit behaviour

TransUnion Canada
Matt Fabian
4 min
Canada shows signs of a positive shift in credit behaviour

Could this be a tipping point for consumer debt in Canada? In TransUnion’s latest Canadian Industry Insights Report, we observed an easing in the rate of growth in consumer nonmortgage debt as well as a continued decrease in overall consumer-level serious delinquency rates.

In our quarterly analysis of over 28.5mn active Canadian credit users, we have seen average non-mortgage debt balances increase at a compound annual growth rate of 1.3% over the past two years. The increase in overall debt continued in Q1 2018 as average consumer non-mortgage debt rose to $29,181. However, this rate of growth has slowed over the past three quarters to total growth of only 0.7%. This may be an early indicator of a drop in consumer demand for credit as the economy slows and interest rates rise. This is supported by the latest data from Statistics Canada, where the disposable income ratio declined 1.7% to 168 as disposable income increased at a faster rate ( 1.3%) than credit market debt ( 0.3%).

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While Canadian consumer debt did still rise in recent quarters, it is important to note that this is against the backdrop of a period of solid economic expansion. The combination of better-thanexpected GDP growth, the lowest average unemployment rate in decades, and increased median household income have boosted consumer confidence. Coupled with continued increases in home values, consumers have continued to take on debt. However, recent events including interest rate increases and a series of changes to mortgage lending guidelines may be catalysts for consumers potentially slowing their use of credit. In addition to the slowing balance growth, we have noticed a decline overall in new credit product origination, indicating less appetite for more credit products as well.

Despite the run-up in debt in recent years, we continue to see that there are no critical stresses in consumer ability to manage this debt. The report also showed a continued drop in consumer serious delinquency rates (consumers who are 90 or more days past due one one or more nonmortgage debt obligation); the delinquency rate in Q1 2018 dropped by 28 basis points from the prior year to 5.4%.

While we see some signs of a shift in credit behaviour generally across Canada, we have also observed the potential start of credit recovery in the oil provinces. The rapid fall in oil prices in at the end of 2014 (compounded by a series of wildfires in the Prairies in 2017) triggered an increase in both average consumer debt balance and delinquency rates. As of Q1 2018, we still see that both Alberta and Saskatchewan have higher average non-mortgage debt balances ($37K and $31K respectively versus the national rate of $29K). However we’ve seen slower growth in these balances over the past year as opposed to the national average as consumers in this region limit their exposure. Average non-mortgage debt balance per consumer in Alberta and Saskatchewan grew below the national average at 1.9% and 2.5% respectively while the national average rose 4.5%.

Further, we have seen a welcome decline in serious delinquency rates also in those provinces, potentially signalling some relief for consumers in that region. Typically, some risk metrics like delinquency have a long tail. Although these provinces have shown signs of economic recovery for a few months, we are only now starting to see that manifest itself into lower balance and delinquency rates. In light of struggles in recent years, many businesses and lenders have adopted more restrictive credit strategies in this region; we feel that perhaps this warrants some review given these early signs of recovery. Improving credit performance in these provinces comes nearly four years after the start of rapid oil price declines at the end of 2014.

As we see continued improvement in consumer credit, it is likely we will see at least one additional interest rate increase by the Bank of Canada, perhaps in the July 11 policy review. As noted above, previous rate increases as well as slowing home price appreciation may be a driver of the slowing in consumer debt growth. The Bank of Canada is likely to be very cautious in additional rate increases to avoid the risk of putting too much of a burden on the economy – especially on the spending and housing fronts. The second quarter of 2018 will be very telling as to whether Canadians continue to lessen their debt burdens which could have an impact on spending. Given looming headwinds like NAFTA negotiations and increased trade tariffs, there may be additional stress on consumers in the most affected regions. But in the meantime, Canadian consumers remain prudent with respect to debt levels and have continued to manage their credit responsibly.

Matt Fabian, Director of Research and Analysis, TransUnion Canada

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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