Debates of Feb. 16th, 1998

Small Business Loans Act

[Steve Mahoney, Liberal, Mississauga West, ON]

Mr. Speaker, perhaps we could get instant

Hansard

and see where it is that I said that businesses want more big government subsidized programs. I do not think you will find that anywhere in my comments.

What I did say and do stand by is that this is a program that makes accessibility of capital available to the people who in other cases would simply not get it. It is a highly successful program. If the hon. member were to do the balance sheet, he would see that the revenue this government and all businesses gain from this program would be dramatically higher than the cost.

[Monte Solberg, Reform, Medicine Hat, AB]

Mr. Speaker, I will be splitting my time with the hon. member for Kelowna.

I rise today to speak to Bill C-21, the Small Business Loans Act. I want to make it clear that Reformers oppose this legislation. We think it is wrong headed. We think it goes in the wrong direction completely. I want to start by outlining some of the concerns Reformers have with this piece of legislation.

What is happening here is the government is proposing to raise the liabilities that taxpayers are on the hook for up to $15 billion, a $1 billion increase. We have to stand four square opposed to that. We do that for a number of reasons.

We point out that the auditor general has been extraordinarily critical of the Small Business Loans Act. Taxpayers are already on the hook for $210 million in loans that have gone bad. Because the point of this program is to underwrite loans, inevitably Canadian taxpayers are going to end up on the hook. In this case it is $210 million. Studies done between 1994 and 1996 indicate that 40% of these loans would have been made anyway. I want you to hold that in your head for a moment, Mr. Speaker, and I will come back to it in a moment.

We also point out that job creation figures under the Small Business Loans Act have been grossly inflated. We should not be surprised by that. We have seen it already in programs like the infrastructure program. In fact I heard the treasury board president talking about that today. He was spreading more of that misinformation. The auditor general actually denounced the government for inflating the job creation figures of the infrastructure program. The government has done it again with the Small Business Loans Act.

The final point is there is very little accountability to Parliament.

I want to go back to the point that I asked Mr. Speaker to consider very carefully, the fact that 40% of these loans would have been made anyway. What that tells me is that we are in a situation where the people of Canada are providing backing for loans the banks would have been making anyway. In other words essentially what we are doing is providing a subsidy to the big banks.

The last time I checked it was the Government of Canada that was in the red and it was the banks that were making $7 billion a year in profits. Why in the world is the guy who is in the red, the Government of Canada, subsidizing the banks that are making $7 billion in profits? I do not see any sense in that. I would argue that it is completely contrary to common sense. If we put that proposition to Canadians today, and I guess that is what we are doing, I can guarantee they are going to say that is absolutely insane.

But does the government turn around and say “Well, we made a mistake. We are not going to do that any more”? No. What it wants to do is increase the liability by $1 billion to $15 billion. What is the sense in that?

I can guarantee that Reformers will not support legislation like this. We believe it is completely wrong to start subsidizing some people with the tax dollars of other people only to have those people who are being subsidized turn around and compete against them. That does not make any sense. It is why we oppose some of the regional development programs, the ones with the inflated job creation numbers, the ones that the auditor general has excoriated in the past. We have to get away from that type of thinking. It does not work.

I want to talk for a moment about what does work. We do not want to be negative here. I do believe that the government has fallen prey to the law of unintended consequences. Perhaps the auditor general has pointed the way for it but of course one can only go where people are willing to follow. Let us hope if the government does not heed the auditor general it will heed some of our advice but I am not counting on that.

Let us figure out how we can help small business. There are a number of things.

The first thing is we need more competition in the banking industry. If there was more competition in the banking industry and it was not just the big six banks being able to skim the cream off the top and take the best and the safest loans to help them get those big profits, then they would have to really explore whether or not they should take a bit of a chance on some of the small businesses out there, the ones where people do not have collateral, the ones where maybe their collateral is in their head. It might be one of the high tech companies.

If there was real competition, if we had banks within Canada facing competition from banks outside of Canada or from other institutions such as insurance companies that got into banking, it would force all of those different institutions to look for ways to provide more credit so that they could continue to make profits. That makes sense. More competition is one way that will provide credit for small business.

Another point we want to make, and this is an important one in light of the fact that we have a budget coming up, is we would like to see the debt paid down. People are going to ask what that has to do with providing help for small businesses. The fact is when the government has a debt of $600 billion and when industry can go wherever it wants to invest, chances are they are not going to come to the country that is most indebted. We saw that in the Asian crisis. When there was a flight to quality did they come to Canada? Hardly and we have seen our dollar fall as a result of that. They went to the United States.

We need to attract those people here. When they come here they bring investment. We have to start paying down the debt to attract those people. By doing that we also start to lower our interest rates. The government all of a sudden is no longer the one that holds all the money and credit is available for other businesses, for instance small businesses. I know that is not as sexy as getting some kind of a small business loan from the bank with the name of the Government of Canada on it. It probably does not get as much political credit, but it works. That is what is important.

Let us start to pay down the debt. Reformers have laid out a plan where we would lower the current debt to GDP ratio from over 70% debt to GDP down to 20% over a period of about 20 years. In the course of that we would save taxpayers about $20 billion a year in interest. It is a good deal all around.

The other thing is, and my friend from Calgary Southeast has mentioned it, we must start to lower taxes. My friend has pointed out and he is absolutely right, that when we talk to small business people they do not say “Boy I wish we could have the Small Business Loans Act liability raised $1 billion”. We do not hear that. But they sure do say “Let us lower payroll taxes. Let us get payroll taxes down so that there is no longer a disincentive for us to hire people”. They point out that payroll taxes are not profit sensitive. If they are in a loss position they are still paying taxes. In fact they could literally be taxed out of business. Let us get those payroll taxes down.

We talk about the small business exemption of $200,000 which should be raised. My friend from Saskatoon pointed this out earlier. If we allowed it to be indexed to inflation it would be up over $300,000 right now. I think he said $315,000. That would help small businesses tremendously.

Let us look at some other alternatives. If we really want to help small business in this country, let us not fool around by raising liabilities by $1 billion and putting taxpayers on the hook for another $1 billion. Let us get away from that central planning thinking which went out with the fall of the Berlin wall. It is time to embrace market liberalism. It is time to embrace the ideas that really do create wealth in this country. That means lower taxes, lower debt, an atmosphere where people are encouraged to invest.

One of the things we advocate is cutting the capital gains tax. We believe that it makes sense to offer people incentives to invest. That would do a tremendous amount to help people who want to start their own small business. All of a sudden there would be all of these people who have a real incentive to invest in a business.

I talked about the folly of Bill C-21, the Small Business Loans Act and some of the particulars in it. More than that we have offered some positive alternatives, some alternatives that will help Canadians, that will give them some opportunity, something they have been missing for a long time.

I encourage my friends across the way to consider closely what we have said and my colleagues on this side to vote against Bill C-21.

[John Maloney, Liberal, Erie—Lincoln, ON]

Mr. Speaker, I listened with interest to the remarks of the member for Medicine Hat. He understands that there are some 1,500 letters when it comes to the SBLA. I noticed with interest that about 11% of the small business loans are in his province alone.

I have a question for the member. Since the Alberta treasury branch's group also participates in the SBLA, would the member and his leader from that province be willing to suggest that all the people in that province should not be participating in the SBLA?

[Monte Solberg, Reform, Medicine Hat, AB]

Mr. Speaker, I thank the hon. member for his question. I would respond by simply saying that instead of that we should have lower taxes, lower debt and more competition in banking so that people have other access to credit.

Not only does the auditor general think this does not work. Some 40% of the loans that were made were ones where the Small Business Loans Act backing was not necessary. In other words, we are subsidizing the banks.

Does my friend across the way think it is necessary to subsidize banks that make $7.5 billion in profits?

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, I have two quick questions for the member. Does he agree with his party leader that the banks should merge? Is it okay for foreign banking competition to come into the country carte blanche?

This has to be the first time a western populist party has sided with the interests of big banks from Toronto over the interests of small businesses in their own communities.

Would the member explain why the Reform Party has been so ready to betray its populist routes in this case? Could it be that the Reform Party is now so interested in winning votes in Ontario that it is ready to support Bay Street over Main Street in its own communities?

[Monte Solberg, Reform, Medicine Hat, AB]

Mr. Speaker, I thank the member for his question but his premise is wrong. My leader pointed out that we wanted to see more competition in banking before we would even consider a merger.

What is important here is how the consumer is served. We are certainly standing up for the people of western Canada when we say that. We believe their considerations should come first and that is why we want more competition and more access to capital than we currently have.

That is where we come down on the issue. The real question is where do the NDP come down on the issue of the Small Business Loans Act.

I have a question for my friend in the NDP. Do they continue to support a system that effectively subsidizes big banks that made $7.5 billion in profits last year? Certainly that cannot be the position of the New Democratic Party.

[Jim Pankiw, Reform, Saskatoon—Humboldt, SK]

Mr. Speaker, to conclude the point I was making earlier, I am a living example of an entrepreneur who was forced by a financial institution to participate in the Small Business Loans Act despite the fact that I would have qualified for the loan anyway.

That seems to be falling on deaf ears on the Liberal side. It is a lesson that they should take to heart, because the criticism of the auditor general is that close to half of the loans administered by the program would not have to be given.

Why would they not want to address the inefficiencies in the program and thereby not require an additional billion dollars, half of which would be wasted because it was not required anyway? By streamlining the program they could free up many more billions just by administering the program efficiently.

[Monte Solberg, Reform, Medicine Hat, AB]

Mr. Speaker, I think that is an excellent question. My friend had collateral. Did that matter? No. He got the small business loans backing anyway because the banks wanted him to take it. In effect, they were double guaranteeing a loan and Canadian taxpayers were therefore subsidizing him. That does not make any sense.

Why do my friends in the Liberal Party not address this glaring problem with this piece of legislation? Not one of them has stood to say that it is wrong and needs to be addressed.

I have a rhetorical question for my friends across the way. Why do they not address this? Everybody knows it is wrong. Why do they not do something about it?

[Werner Schmidt, Reform, Kelowna, BC]

Mr. Speaker, I wish to enter the debate on Bill C-21 with a series of questions designed to give direction to the government in the administration of this program.

We on this side of the House have been accused of being totally and unalterably opposed to granting capital to small business and making it available for them to access business. That is not the point at all. There has been a total and complete misrepresentation of what we are talking about.

We are talking about the 40% or 50%—in fact the most recent study says about 46%—of the loans granted under the SBLA that would have been granted in the normal course of events. I am talking about the other part and will ask questions about it.

The study on access to capital by small business asked whether the Department of Industry would do a cost benefit analysis of the Small Business Loans Act. Why is it that since 1995, when the first set of amendments were proposed by the Department of Industry, no such study has been done? That is the question.

The particular program is supposed to increase jobs. I have a question to ask that is similar to the one asked by the auditor general. He asked how many jobs were created. Is the number of jobs created simply the number that the applicant writes on the piece of paper, or have they actually been verified as the number of jobs created? How many jobs were lost because a particular loan was granted to one business and not granted to another? These are very significant questions.

The program is supposed to help small business improve. How does the act propose that the business be measured? What is the improvement? There are no statistical indicators of what constitutes improvement.

Some obvious measures could be level of sales. Has the level of sales risen? Is the profitability of the company a little higher? Is its productivity higher? Is it more competitive? What is the level of exports compared to before the loan was given and later? How many products were developed? What is the net employment impact? What is the overall business success? These suggestions ought to be made and ought to be included.

I want to raise another point which has to do with a grave injustice and grave abuse of the provisions of the program. The program was supposed to be there to help small business. My colleagues across the way have made a big point about small business. I draw attention to a paragraph found in the auditor general's report. It is a rather significant one.

The Small Business Loans Act puts a ceiling of $250,000 on an individual loan. In his sample of loan files the auditor general noted some cases in which a number of individual corporations with substantially common ownership had collectively obtained more that $250,000 in loans to operate the same business. In one particular case a group of 23 corporations obtained more than $4 million in SBLA financing.

That is a blatant abuse of the provisions of the act. Yet there was no indication as to why this was done. Nor was there any action taken to prevent this from happening. Nor was there any consequence as a result of it having happened. The least I would suggest to the Minister of Industry is that kind of a thing should not happen again.

The Income Tax Act has a provision that does not make it possible for corporations with essentially the same ownership to bundle together to get particular advantages. Why does this act not have that provision? That was well known since 1966 yet there is not even a hint of that happening.

Instead of us perpetuating the act indefinitely, the Department of Industry should have a year to study it in great detail. It should have done it already. Since it has not been done we will give it the benefit of the doubt and give it another year.

In no way should the department be given any authority to spend more money than is already in the provisions in the act, which is $14 billion. It does not need the $1 billion. We heard the minister this morning say that the commitment at the moment is $12.7 billion.

There is a cap now of $14 billion, which is a $1.3 billion difference. The government wants another $1 billion on top of that. If the pattern remains the same as it was 46% of that would be granted anyway. If we take that out, there is more than enough money left to meet the real intent of the Small Business Loans Act. I suggest that we change the act so that it does one thing and not the other. That is the gist of that provision.

There is more. We need to ask ourselves why the SBLA program has not been adjusted to be more accurately reflective of the economy around us. It is interesting that there is no change in this regard at all. The program still focuses on land, premises and equipment. Yet where is the economy going? The economy is going into high tech, into knowledge based industries. It is not going into land, premises or equipment in the first instance.

If the minister were really concerned about meeting the needs of small business, he needs to do not only the things that have been discussed already with regard to tax reduction but to make money available in those areas that will bring forward our competitiveness as a nation. I think that needs to be addressed as well.

I also want to ask the minister if his officials have projected the possible risk of new failures. About 75% of the defaults of the loans under the SBLA come from businesses that are new enterprises. Three-quarters of the defaults are in new enterprises. Has that been figured into the risk situation? We have no indication that is in fact the case.

The auditor general goes so far as to say there is no figure that we as parliamentarians can look at to say what is the projected default rate or cost in terms of actual dollars of this program. The auditor general's estimate stands at $210 million. That is a figure of cold, hard cash which he believes the taxpayers of Canada will have to fork out.

Why does the Department of Industry not come clean and tell parliamentarians that Canadian taxpayers are on the hook for a minimum of $210 million in predicted defaults in this area? That says nothing about some other areas that could come into question.

Another thing really bothers me. Does the department have enough information? What happens if a lending institution, say one of the big banks, says that a loan is in default? The auditor general makes a rather interesting observation in section 29.64:

Industry Canada does not request access to the complete loan file when it receives a claim.

This means that the department does not know whether the lending institution observed all the requirements of the act. There is some indication that some lending institutions did not. They charged the borrower fees, which was contrary to the provisions of the act. These very serious questions have to be addressed. That is why we are not prepared to give to the Department of Industry one cent more than it already has.

[John Solomon, NDP, Regina—Lumsden—Lake Centre, SK]

Mr. Speaker, the member for Medicine Hat and now the member for Kelowna are quite unsupportive of Bill C-21 as it applies to the financing of small businesses around Canada.

The premise of the argument of the member for Medicine Hat was that there was a lot of abuse by the banks of the SBLA.

Members who have been in small business will know that the banks administer the provision of the SBLA loans. The members for Medicine Hat and Kelowna have said that 40% of the loans under the SBLA would have been approved anyway by the banks. Their approach in respect of small business is not to look at the program and its abusers and to try to figure out how the program could work to the benefit of Canadian small business. Their approach is to kill the program.

Can the member for Kelowna tell me why you feel we should kill the program while we let the banks get off scot free? They are the ones that are abusing the program. You said the banks are allowing these loans to go forward. Why will the Reform Party not say that one of the solutions could be to look at the banks?

[The Speaker]

I would ask hon. members to please address your questions and your answers to the Speaker.

[Werner Schmidt, Reform, Kelowna, BC]

Mr. Speaker, the member who referred to me said that the Reform Party wants to kill the SBLA. That is not what we said. That is not what my hon. colleague said. That is not what I said. It is not the case at all.

I asked a series of questions about what is wrong with the act and I suggested how it could be improved. I thought I made that quite clear. If I did not make it clear then, I will make it clear now. We are talking about that section of the loans program that would have been served regardless of the SBLA. Let the SBLA do what it was intended to do. But that is not the issue. Our concern is not with what it was intended to do but rather with the abuses that exist. I want to make that abundantly clear.

[Keith Martin, Reform, Esquimalt—Juan de Fuca, BC]

Mr. Speaker, my colleague from Kelowna gave an excellent speech in which he illustrated some of the problems with the SBLA.

I am curious about the aspect of the lender. There seem to be numerous loopholes within the act which enable the banks to engage in what may be termed as less than attentive policies toward what they are lending and the conditions under which they are lending. We found one of the problems is that the act enables the banks to lend to people without due care to the criteria upon which they apply.

I am sure the hon. member has read the auditor general's report on the Small Business Loans Act. Could he provide the House with any constructive suggestions for how the government could change the SBLA to ensure the lender is taking due care?

[Werner Schmidt, Reform, Kelowna, BC]

Mr. Speaker, some very simple things could be done.

One is that the government could make sure there are no loopholes in the act that would allow companies with the same ownership to bundle their stuff together. There should also be concrete and specific measures of productivity, ability for expansion, profitability of business, things of that sort. If those things were done, then it would work. It is very simple. There are no deep secrets here at all. All the government has to do is apply some common sense and good sound business principles and it will work.

[Maurizio Bevilacqua, Liberal, Vaughan—King—Aurora, ON]

Mr. Speaker, I wish to address the House with regard to Bill C-21, an act to amend the Small Business Loans Act. The support for small and medium size businesses provided by the SBLA is integral to the government's jobs and growth agenda which is reducing the deficit, creating the conditions for strong and sustainable economic growth, and helping Canadians get back to work.

I will engage in this debate by giving a larger scope and a broader framework to the issues we are debating. I will also illustrate that the SBLA is part of a larger strategy presented to Canadians by the government.

The strategy basically deals with four overarching themes: to make Canada the most connected country in the world; to enable Canada to realize its international potential; to invest in innovation and knowledge; and to increase the participation of Canadians in the new economy. All of these themes are highly relevant to Canada's small business community which indeed must adapt and innovate to thrive in the new information economy.

Over and above the benefits that our renewal of the Small Business Loans Act will confer on small and medium size enterprises, many Industry Canada programs are designed specifically to increase the participation of small businesses in the new economy. These programs complement the way in which the SBLA supports small businesses and innovative new companies in particular by making it easier for them to secure debt financing.

Recent developments with regard to connectedness are particularly exciting and relevant to the field under discussion. Let us take some examples.

As part of small business week recently, the Minister of Industry launched three new Internet web sites designed specifically for small business. The sites are located on Strategis, Industry Canada's interactive web site. The new Strategis sites continue Industry Canada's efforts to connect Canadians, increase support for small business and move Canada ahead in the knowledge based economy.

The first, Sources of Financing, is a new leading edge product based on a sophisticated and powerful search engine. Through the site small businesses can access information on a wide range of information about traditional and alternative sources of financing. These sources include the SBLA and run the gamut from the familiar debt financing arrangements available from the major financial institutions to services offered by micro lenders or venture capital companies.

The second site is designed to complement the Canada community investment plan, CCIP, an initiative which was started in 1996. It is an innovative program to help businesses with potential for growth gain access to existing private sector sources of risk capital. The program which has a special focus on small and medium size businesses is designed for communities which exist outside the orbit of Canada's major financial centres. Twenty-two communities across Canada are taking part.

Steps to Growth Capital is the Strategis web site which has been created as a companion information site to the CCIP. Steps to Growth Capital will help growth oriented firms prepare themselves to find outside investors and close a deal. There are eight steps covered in the program which address a whole range of investment capital issues, from identifying capital needs to managing a relationship with an investor.

It is becoming quite clear from the comments I have made that the SBLA should simply not be viewed in isolation but rather as part of a larger strategy presented by the Government of Canada under the leadership of the Minister of Industry, who has really taken upon himself to provide the type of programs and tools to the small business sector so that it can grow in a growing economy. We could look at this perhaps as the creation of a tool kit for small businesses so that they can generate the type of wealth and the type of jobs our economy needs.

These three sites have come on line in addition to the wealth of small business information already available via Strategis through Contact!, the Canadian management network. This site is one of the busiest on Strategis. It provides entrepreneurs with access to information on where to find out about management skills, locate outside advice and take part in extensive on line business to business discussion forums.

Contact! makes available many, many resources. For example it provides extensive data on more than 1,500 Canadian small business support organizations. It also includes an all in one business support centre with more than 450 on line how to publications and descriptions of more than 300 business management software tools.

It is clear from the type of material and programs the Government of Canada is providing small business that we are doing our part and our share to make sure that they can grow to their potential.

The government's goal in making Canada the most connected country in the world is to ensure that Canadians wherever they are can have access to the information highway by the year 2000. This is perhaps the single most important action the government can take to ensure that we succeed in the knowledge based economy.

I think members of Parliament on both sides have a full understanding that there has been quite a transformation occurring in this economy. The role of government as a facilitator is to provide these opportunities for small business so that we are well equipped for the challenges of the 21st century. May I say it is not so much the 21st century that we really have to get ready for. We have to be ready because the so-called 21st century telecommunications systems and networks are here already.

This is why Industry Canada is working with private and public sector partners to ensure that all of Canada's 16,500 schools and 3,400 libraries are connected to the Internet by 1998. That is the type of leading edge work we need to engage in. Just think about the fact that 16,500 schools and 3,400 libraries are going to be connected to the Internet in 1998.

What does that mean? It gives us a competitive edge as a nation. We will be ahead of most if not all industrialized countries in the world in this particular sector. Why is that important? Because it speaks to competitiveness in the ever growing competitive global marketplace. It provides our people with the human resources required, the potential to expand this country's human resources and to make sure that we get our fair share.

It is also why we are connecting rural and remote communities through public access sites across Canada. It will give them the tools to further their economic and social development. For rural communities, technology is their friend. It brings them closer to the centres and makes them connect not only with people within Canada but throughout the world.

My colleagues will continue on stressing some of these points. I am sure they will dedicate the majority of their speeches to the issue of how this bill we are examining is part of a larger strategy the government has in mind. I have touched upon some of the key issues in my 10 minutes. My hon. colleagues will touch on some of the other overarching themes in the Minister of Industry's strategy for a more connected society.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I am pleased to participate in the debate on Bill C-21, an act that will extend the lending period of the Small Business Loans Act for another year, until March 1999. It will also increase the aggregate funding ceiling under the program by $1 billion, from $14 billion to $15 billion. I can say with some conviction that any program that helps small business raise capital is something this House should support.

Again I am amazed by the rhetoric of members of the Reform Party. I do not know where they have been. In my riding I have talked to small business people and they have told me about the difficulty they have in attracting capital. This program would give needed capital to small business.

Reform members say that small business will look at the balance sheet of Canada and say that the Government of Canada owes all this money, has all this debt, and therefore they will not invest in Canada. Where have they been? We are talking about small businesses with one to twenty employees. Do they really believe those people will sit down to look at the balance sheet of the Government of Canada and say there is all this debt and therefore I am not going to start a business in Canada? Where are they?

Maybe that is what big business would do. Maybe medium size business would do that. But it is certainly not the drivers of economic growth in Canada, the businesses with one to twenty employees, the businesses which are creating all the jobs in Canada which would do that. Do those members really think that small businesses sit down to analyse the balance sheet of the Government of Canada? I am not saying that we do not have to deal with the national debt, but they are getting caught up in their own rhetoric.

Recently we have seen data which indicate that small businesses are driving the jobs in this country.

A couple of years ago members of the Reform Party said that we had to deal with the deficit. Our government dealt with the deficit. They were saying that we must decrease taxes. Now they are saying forget about decreasing taxes, eliminate government debt. If we ask them how they can argue both sides, they say we want it all.

We have to make choices and our government is making choices. We are dealing with the debt. I would like to see income tax reduction in Canada. We are dealing with that in a targeted way. We will be in a position in the not too distant future to give Canadians some general tax relief.

I have talked to business people in my riding as well as the banks. The finance critic for the Reform Party said that the auditor general has criticized this program because 40% of the loans would have been made anyway. The whole idea behind the small business loans program is to provide incremental funding.

I am a chartered accountant and I have the greatest respect for the work the auditor general is trying to do. He criticized other programs such as TAGS. I am wondering, with the greatest respect, what methodology the auditor general used to establish that so many of these loans would have been made anyway. Does he have a crystal ball? Can he look into the future and say that these loans would have been made anyway?

I would like to know his methodology. It is unfortunate that the finance critic for the Reform Party is not here. I am sure he has studied that methodology in some depth and understands clearly how the auditor general can make that assertion.

How can he make the assertion that these loans would have been made anyway? I challenge that. I have talked to small business people who very much like this program. It is a way for them to get capital which otherwise they would not be able to obtain.

I have talked to bankers. The member opposite intimated that the banks like the program because it means more profits. The day Reformers start attacking profits is another day. I wish they would make up their minds.

The bankers say this is an incredibly good program. It helps them to package financing. It helps them to help small businesses when often they would not be able to do that.

I have been critical of the banks. I was at the Bank of Montreal last week and I met with small business loans officers. I said how are you rewarded? Are you rewarded based on how many new loans you give to small business or are you penalized for how many bad loans you make? I would have to say, in fairness, they do have some criteria for new business. They are rewarded or judged on the volume of new business they are able to generate. But they are also judged on how many bad loans they make. I submit that we still have in our Canadian banking system the culture that we do not want to make too many bad loans. That culture is changing.

We have seen the banks get into the high technology sector. They know they are not as qualified or as experienced with the high technology sector as they could be so they are trying to gear programs to the high technology sector where they do not have the fixed assets or the collateralizing of loans that was possible in years past. They are talking more about loaning on a good solid business plan and managerial abilities. They are making progress but we have a long way to go.

Last year in the finance committee I supported a new entrant, the Wells Fargo bank. It works on a very simple model called risk and return. When there is a higher risk it will charge more interest. It makes sense. Why have the Canadian banks here not embraced it? I do not know. A certain threshold is met at a Canadian bank it says sorry, if you do not meet that hurdle rate we are not dealing with you. We are letting Wells Fargo in because it says that if it is a riskier loan it is going to charge more interest. What can be more realistic or more reasonable?

It also says that it is going to loan on a good business plan. It realizes that the world is changing. We have more technology. We have businesses that need capital but they do not have the equipment, the land or the buildings to offer as collateral. They have a very good idea and a sound business plan and it loans on that. Therefore we are letting it in.

I believe we need more of this kind of competition in the Canadian banking system because some of these banks that have come in from the United States are very aggressive with small business. When I talk to constituents in my riding sometimes they say they have been to a Canadian charter bank, the Bank of Montreal, TD bank, the Bank of Nova Scotia, CIBC or whatever, and they will not look at them.

I ask them if they have been to the Business Development Bank of Canada, a federal bank which is meant to be a lender of last resort. It will take a slightly bigger risk. My constituents say they have been there and it will not look at them either. I then ask them if they have been to the venture capitalist. They might be in that situation because our Canadian banks are struggling. We are sending some signals that they should be more supportive of small business. They are doing things but they have to do a lot more. They have to stretch a lot harder.

They say “yes, we have been there but it wanted 35% of my business. It is my idea. I put all the work into it. I developed the business plan. I want to make it work and it is saying it can loan me some money but it wants 35% of the action”.

My constituents are telling me they are not prepared to do that. I tell them frankly that with the way things are now, until we have more competition such as U.S. and foreign banks, they are going to be stuck. We are working on it but they had better think about giving up 35% equity maybe with a buyback later on. They are telling me that they are just at their wit's end.

I went back to a number of those small business people and told them there is a bank coming into Canada called the Wells Fargo bank, by way of example, and there are going to be more. I tell them this bank will sit down with them. It will be slightly riskier and it will not be prime plus 3% or 4%. It is going to be prime plus 7% or 8%. I ask them if they think that is a good idea and they tell me it is an incredible idea. I ask them if their business can carry it and they tell me that they will rejig the numbers but they think it will work. They know they will then still own their business.

That is when I came back here to Ottawa to get in on the finance committee discussions. I told them we were going to let banks in like the Wells Fargo bank. I think we can do more with the Wells Fargo bank because it has to support start-up businesses as well right from scratch. It cannot cherry pick. It has to be with start-up businesses right from day one. With the more competitive environment in Canada, which we are creating through some of the moves that we are making, and with more aggressive lending to small business we will all be better off, including small business which will be creating more jobs.

I therefore urge members of the House to support this bill which will provide an important source of capital to small business.

[Gary Lunn, Reform, Saanich—Gulf Islands, BC]

Mr. Speaker, I am glad to observe that my friend from across the House was taking notice of Reform so much, accusing us of rhetoric, although I do not know if he is concerned.

Listening to this debate, what concerns me is that it goes back to the same old Liberal ways of doing business. Their way to solve a problem is to throw money at it. They do not think beyond the first level. They say they are going to solve this by throwing more money at it and the problem will go away.

If any party has supported small business, it is the Reform Party. We have worked very hard toward that.

The problem here is not giving more money to the small business program. It is the taxes that have been imposed on the small businesses. That is where the real problem lies.

Look at the employment insurance provisions and the taxes there. The Canada pension plan is the single largest tax grab in the history of this country. Who does it affect the most? It affects small businesses. Their premiums will go up significantly. If the tax structure were made a lot more friendly especially for small businesses starting out, they would have a much better chance of being successful.

Their idea is to throw money at them and hope that the problem goes away. We all know in that when businesses are starting out they have a very difficult time, especially in their infancy, when they are starting out, in their first year. The percentage of businesses that go under is very high.

I suggest to this government that it look at the tax structure and at providing incentives for these businesses as opposed to just throwing money at them. Too often we have seen examples of this government, how it gets itself out of messes and again it is the old spend, spend, spend.

We are very concerned on this side of the House that as we approach a balanced budget, and we know we are getting there, we may be there now, the shopping lists are coming out from all the ministers. We know they are lined up at the Prime Minister's door and this is just an example of one of them.

Yes, we have some grave concerns. Let me give a few examples of how the Liberals just throw money at problems. We have seen the Airbus scandal. How did they solve that? Pull out the cheque book and keep offering more and more until they finally accept. There is the solution.

Look at the Pacific salmon dispute on the west coast. We saw all these lawsuits coming forward and the government trying to broker a deal. Alaskans have lawsuits against Canadian fishermen to the tune of $3 million. Our government's solution is to offer them a $2.7 million settlement.

Again, just throw money at it instead of really going to the heart of the problem and trying to find the solution. It has not done anything. It is the same situation there.

Again I suggest to the members opposite that throwing another billion dollars into the small loans program may be great for a few businesses that will have access to more money, but if they have sound, viable business plans and they go to the banks, they will have no problem securing financing.

I will sum up in a few words. Do not throw money at the problem like always, look at the real problem, cutting taxes.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I truly hope the constituents of the member for Saanich—Gulf Islands are listening to this debate. There are many small businesses in the creative field such as artists and other small businesses. If they could hear what he just said in this House. If someone goes to a bank with a good business case, they can get a loan. I do not know where he has been. He is just not listening or he has not been out there talking to people.

Talk about the rhetoric of Reformers. It looks like they get their speeches by cutting and pasting. They talk about subsidies to business. What we did as a government is to say that big business and medium size businesses do not need us as much. Frankly, we cannot afford it any more.

We took a major effort to reduce or almost eliminate grants or loans to big and medium size businesses. In fact, Industry Canada was reduced by 40% or 50%. All the granting and loan programs when it came to medium and big business were essentially cut out.

What we are talking about here is small business, the people who need us, those who need our help. We should be supporting financing for small business.

The member opposite also talks about payroll taxes as he calls them. Our government has reduced employment insurance premiums while the previous government increased them significantly. I think this is an incredible program that helps small business with access to capital. I think everybody in this House should support it.

[Antoine Dubé, Bloc, Lévis, QC]

Mr. Speaker, as a member of the Bloc Quebecois and the Standing Committee on Industry, I am pleased to speak today on Bill C-21, which addresses loan guarantees or loans to small businesses.

I am a bit of a newcomer to this role, dating only from my second mandate. We are looking at a bill that is, when it comes right down to it, rather easy to examine, as it contains but two clauses. It is a pretty thin bill.

The first clause extends the application of the old act by one year to March 31, 1999. The second one increases the ceiling for guaranteed loans by $1 billion, that is from $14 billion to $15 billion.

Despite the thinness of the bill, we in the Bloc Quebecois are in favour. Opposition to it would mean the premature end of a program that is good for Canadian businesses, and for Quebec businesses as well. Until something better comes along, until there is a more complete bill, a revised one which could better help Quebec and Canadian businesses, we have to be in favour. We are of course at the second reading stage, so when it goes to the Standing Committee on Industry we will make our suggestions known to the government, to the representatives of the party in power.

It will not be very hard to make some good suggestions. I was looking just now at the report on the work of the industry committee. I notice the member who represented our party during the Liberals' first mandate and recall that he had tabled a dissenting report because, while supporting the legislation, he could already see that the eligible amount or the portion of the loans that was guaranteed by the government was down to 85% from 90%.

At the time, based on comments and representations made by businesses in his region, and across Quebec and even Canada, the hon. member for Trois-Rivières, suggested the status quo in this regard. But the government nonetheless reduced the eligible portion from 90% to 85%.

Is this indicative of a trend? I would not want to be unduly pessimistic but this is certainly something we in the Bloc will keep an eye on in committee to ensure this downward trend does not continue.

As we saw earlier, the auditor general too was critical. It is important to look at his recommendations. He found that, in some respects, control was lacking. While only 5% of businesses default on their loans, care must be taken not to squander public funds. The auditor general made a number of suggestions, which will naturally be taken into consideration in committee.

Basically, if I summarize his comments, the auditor general said that the government did not think enough of small business, did not regard their activity as important and was paying attention mostly to big business.

I agree with him on this because, while attention should be paid to big business and give it assistance as required, at least through legislation, it is clear that the largest number of jobs is being created in small and medium size businesses.

I would now like to address the situation of small business in Quebec in particular. Members of the Liberal Party and other parties from other regions of Canada outside Quebec have been given the mandate by their constituents to represent their particular region. We cannot blame them, and I should not be blamed for talking about Quebec.

In 1996, there were 173,704 small and medium size businesses. Based on Quebec's criteria, these are businesses that have less than 100 employees. In Quebec, 98% of companies are small and medium size businesses. It is all these small and medium size businesses—we could even say very small businesses—that provide work for people. Indeed, 45% of all jobs in Quebec are in small businesses. This is very important.

These figures are interesting. There seems to be a pattern whereby, since 1989, the fastest growing industries in Quebec have been those—and this came as a surprise to me—in the education sector, with 20.7%. This sector was followed by the transportation and storage industry, with 20.3%. The hon. member for Drummond will be interested to know that private businesses providing health care and social services experienced a 19.8% growth. So, Quebec society is undergoing some changes. An increasing number of people work in these sectors, for private sector companies, small and medium size businesses are active. These are employment sectors to be considered, like the others.

As we all know, small and medium size businesses play a major role in the agri-food industry, which includes agriculture and fisheries. We often think of production, but there is also the whole processing and tertiary sector, that is the agri-food marketing industry. Small and medium size businesses account for 91.4 % of jobs in that sector. In the construction sector, it is 89.4%; in the real estate services, 74.1%; in food and accomodation, 73.2%; in the wholesale sector, small and medium size businesses account for 70.4%. This is a very significant contribution.

There is something important to watch for. Bloc Quebecois members and people in Quebec believe that while it is all right to try to help businesses by providing loans or loan guarantees, the number one criteria should be the number of jobs. Does the loan help create or maintain jobs?

A business may be able to provide a guarantee, but employ very few people. We have to look at priorities.

In retail trade, 221,300 people are employed; in manufacturing, 189,000 people; in food and accommodation, 121,900 people; and in wholesale trade, 105,600 people.

I was interested in analyzing past trends in net job creation. An analysis in terms of net job creation since 1981 reveals that SMBs have created the most jobs. There is only one year since 1981 where big business created more jobs than SMBs, and that was in 1991.

I can talk about the situation in Quebec. I cannot talk about the other provinces, because I did not look so closely at them. Despite the difficulties between 1989 and 1994— The situation was particularly difficult for business.

Quebec SMBs experienced an annual increase in jobs of nine tenths of one per cent even during the period when the job rate declined everywhere and when SMBs in Ontario, by way of example, under the same conditions and economic factors, experienced a reduction of 13.2%. A considerable amount. We can see that SMBs in Quebec are dynamic and play a major role.

Between 1989 and 1994, times changed. The SMBs in Quebec started less than five years previously accounted for 422,000 jobs in Quebec against the 51,000 jobs lost, and obviously there are losses. It is small, not large, businesses that are creating new jobs in Quebec.

I do not want my remarks to be interpreted as an attack on large businesses. We need them. I had one large business in my riding called MIL Davie. When times were good, that company employed 2,500, and sometimes as many as 3,000, people. Now it is limping along at 500, and great effort is required by the various levels of government, particularly the Government of Quebec, because in this case the federal government has not yet done anything. But keeping the number of jobs at 500 is a major undertaking. My region of Chaudière-Appalaches has the lowest unemployment rate in Quebec because new job creation is coming from SMBs.

I may be a sovereigntist, but as long as we are in a federal system, I have nothing against federal legislation or programs to help Quebec businesses, unless of course they cancel or duplicate existing services. On this note, it would be good, and I often mention this to the regional development critic for Quebec, if there were some co-ordination so that we could avoid certain situations such as those we saw during the ice storm.

In his quest for visibility in Quebec, the President of the Treasury Board, along with the Minister of Intergovernmental Affairs, is doing everything he can to one up the provincial government and look like he is the saviour of business, when he is in fact refusing to do his share, as he did in the case of Newfoundland and Manitoba, to compensate Hydro-Québec for its losses. That is serious for the Government of Quebec, because Hydro-Québec as a crown corporation, hands over its profits to the provincial government and therefore helps to lighten the burden of Quebec taxpayers.

Another reason I support the continued existence of this system for guaranteeing loans to small business is that figures for Quebec indicate that 6,000 loans totalling $321 million were granted under this legislation by the caisses populaires to SMBs. The banks gave out 5,600 loans worth $385 million, for a grand total of $732 million. In this context, it is impossible to oppose a service that provides loans for so many businesses, different businesses.

Nearly 11,600 businesses benefited in one year. My sample was for one year. That is a lot, that is significant. This is why these loans must continue to be granted in this context, with the average loan being for $60,000. Unfortunately, I repeat that the government guarantees only 85% now and not 90% as in the past.

Another reason is that 66% of new loans were granted to new businesses or those operating for less than three years. That is when businesses are in need. As the Bloc members at the time pointed out—and the member for Trois-Rivières spoke to me of it, I recall, he reminded me of it just before I rose to speak—the program is too limited, however.

There is nothing in this for the working capital. There is nothing in this to add true liquidity. So, some improvements will have to be made.

To be sure, we are in favour of maintaining this program. However, we in the Bloc Quebecois—and I am talking to business people who may be listening to us—will seek improvements to this program, while making sure it complements Quebec's policies, in the interest of businesses.

We will pay particular attention to jobs, perhaps because I sat on the human resources committee and spent a lot of time reviewing the Employment Insurance Act, which would be more appropriately called the Unemployment Insurance Act. If the government wants to help businesses, it should pay special attention to creating and maintaining jobs. I think that, in this day and age, employment should be the prime concern of governments. I am sure you will agree with me that, in helping businesses and guaranteeing loans to them, the government should be obsessed with creating jobs.

[Keith Martin, Reform, Esquimalt—Juan de Fuca, BC]

Mr. Speaker, I have a few questions for my hon. colleague in the Bloc Quebecois.

A couple of years ago the PQ, under its current leader, did an economic study of the impact of separation on the people of Quebec. The study was commissioned by its current leader, Mr. Bouchard. It demonstrated conclusively that separation would dramatically and adversely affect the people of Quebec economically.

When that study came out it was forced under the carpet. The individual member of the PQ, an ardent separatist at the time, quit in disgust.

The member cannot sit in the House and talk about how well businesses are doing in Quebec. One needs only to go to Montreal to see the economic devastation wrought on that once beautiful, gorgeous and vibrant jewel in the crown of Canadian cities.

There are few points I would like the hon. member to think about and then to remark on after my comments.

Separation will adversely damage the economy and therefore the people of Quebec. Does the hon. member feel businesses in Quebec will have access to the SBLA if it separates?

Will he also comment on the fact that net flow of money does not go out of Quebec but into Quebec and therefore is a direct economic benefit to the people of Quebec.

When it comes to business, in North America who is our biggest trader? It is the United States. Of all countries between the United States and Canada, clearly the United States is more ethnocentric than Canada. If Quebec separates who will be its biggest trading partner? The United States. What language will they be doing business in? Will it be French? I do not think so? It will be English.

The impact of doing business, the economy, trade and social relations with people south of the border will not be a profound positive effect on the French language. It will be a profound negative effect on the French language. Therefore separation will not strengthen French within the province of Quebec. It will weaken it.

Does the hon. member think separation will improve the economic welfare of the people of the province of Quebec? Will it improve the business community in Quebec? Or, will separation remove the benefits Quebec currently has in Canada and therefore weaken the economy of Quebec and weaken the strength of French in Quebec?

[The Deputy Speaker]

The Chair has reservations about the question, given the nature of the bill under discussion. In any event it is a comment on the speech of the hon. member for Lévis.

[Antoine Dubé, Bloc, Lévis, QC]

Mr. Speaker, the Reform member's reaction to the bill as introduced is somewhat surprising. He is asking about the post-sovereignty period. Today we will not be the ones accused of bringing up the subject, for we are being asked for a response.

First of all, there was the 1995 referendum. It was lost by about 50,000 votes, or in other words, it was nearly 50-50. The federalists predicted the consequences of not voting against the project presented by the Government of Quebec. What was involved was to say yes to sovereignty, but with an offer of partnership to continue economic relations, and so on. The situation has remained unchanged on the constitutional level, since Quebec is still within Confederation. I therefore find the hon. member's comments, particularly those on the situation in downtown Montreal, somewhat confused.

He has just told us that federalism is serving Quebec badly, Montreal in particular, at this time. One of the reasons why Quebecers wanted to vote yes was, precisely, in order to acquire more autonomy, more means of controlling their economy, in order to be able to live better.

But the situation is still there. The federal government is still interfering in the same areas as the Quebec provincial government, and more often than not in areas of jurisdiction which belong exclusively to the provinces under the Constitution. Quebec is not the one involved in messing with areas of federal jurisdiction. Quebec is trying to extricate itself as best it can, for example in health or education, because it has shared the same fate as the other provinces, federal government slashes to funding. Quebec is doing all it can to get by.

It is doing so within the framework of a provincial state, without all of the means it should have available to it: legislation, programs, money, among other things.

I am not saying that such was the intention of the Reform member who just spoke, since he generally weighs his words and is extremely respectful of others' opinions, so I shall be equally respectful of his, but I do find that somewhat condescending. As for the cost, it is as though we Quebeckers were lucky to be in confederation and looked after by all the other provinces, who are supposedly paying our way.

I heard reactions about EI. It is true. One third of EI benefits go to Quebeckers. But why is this, dear colleague? It is because there is more unemployment, because the economy is in worse shape as things now stand in the Canadian confederation.

What you are telling us is we will be worse off if we leave. That is the message you are giving us, instead of telling us you will do everything you can to help Quebec catch up with British Columbia, Ontario and Alberta. Yes, unlike those provinces, we get equalization payments. But, instead of telling us that, you are condescending.

We are asking for more flexibility, more freedom. We are saying “Give us the means and you will see. We will continue to be economic partners, to have economic relations”. Then you tell us about the north-south direction of trade. It is no different in Quebec.

I do not have all the figures with me. We could discuss this another time, but it is clear that the trend you are seeing in your province is one we are also seeing in Quebec, and that the economy is increasingly along north-south lines. This is an advantage to Quebec, and does not necessarily put British Columbian at a disadvantage with respect to California or Oregon, but we are in the same situation.

Sometimes I want to ask you “If we are costing you so much, why not let us leave? That is all we are asking”.

[André Harvey, Progressive Conservative, Chicoutimi, QC]

Mr. Speaker, we will certainly not be holding the constitutional debate here this evening because the government, with the support of the Reform Party, has decided to refer it to the supreme court.

I wish to point out to my hon. colleague from the Reform Party that the best way to work constructively is certainly not to run election campaigns as racist and provocative as theirs was this past May.

I would like to congratulate my Bloc Quebecois colleague for his speech, and to tell him that I am sure he will do a good job in committee to improve all of the aspects of this measure.

I would like to raise the following point with him. In developing a business, there is the whole aspect of financing, particularly for small and medium size businesses. There is also the whole aspect of training. Tens of thousands of jobs in this country are unfilled because companies cannot find the appropriate human resources for the available jobs. This means quality manpower is a key element in a company's future.

I would like to ask my hon. colleague whether, because of the billions of dollars cut from education budgets across the country, and the excess burden placed on small business and on workers through the employment insurance program—the government has built up $15 billion in the fund—he is not concerned about these cuts, which were made without consulting the provinces. Student debt—

[The Deputy Speaker]

I am sorry, but there are only ten seconds left for questions and comments. The hon. member for Lévis has the floor for a very brief response.

[Antoine Dubé, Bloc, Lévis, QC]

Mr. Speaker, I would just like to say that I would not go quite as far as the hon. member for Chicoutimi did in his comments on the Reformers.

Regarding manpower, I think the problem will be resolved to some extent come April 1, when the Government of Quebec will have access to part of the EI fund and have a single window to manage the whole area of active employment measures. I think that will make a substantial difference.

Cuts were made of course, but at least, from a sound management point of view, they were called for. We know that there was a consensus in Quebec; all political parties agreed that the Quebec government should look after manpower training itself. In that sense, I am rather optimistic.