Finance Committee on April 23rd, 2020

[David Lefebvre]

Thank you, Mr. Ste-Marie.

[The Chair, Liberal, Wayne Easter]

Mr. Staniloff, earlier you wanted to make a point, I think.

[Marc Staniloff]

Yes. I won't be too long. Thank you, Mr. Chair.

I have just two things. I know that there was a discussion about the BDC loan, the $6.25-million loan. The problem with that process is that it's impossible, or very, very tough, to get it. You have to qualify with a financial institution. From a hotel point of view, we're not going to qualify today. We don't have the income. The value of our hotel, which is tied directly to income, has dropped sufficiently enough. The hotels usually have a first mortgage anyway, so to be able to top that up is extremely tough. There has to be a forgivable portion on it.

The other issue is the guarantees. What they've been asking for is personal guarantees, both on that loan and also on the COVID working capital loan that BDC has been offering. We are in the process right now of trying to get them, but it's extremely difficult. It's not an easy thing to do. I know that a lot of my fellow hoteliers are just giving up. They've actually been turned down. They did the application and they got turned down right away. It has been a real challenge.

The other thing I want to add is with respect to the 70% that Mr. Lefebvre was talking about. That's similar to what I was talking about on the hotel side. We need to get back to some level before this wage subsidy program is terminated.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks to all of you for that information.

We'll turn to Peter Julian. I see that Michael Cooper has a mike on, so we'll go to him after that.

Peter, you're on for six minutes.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Mr. Chair, and thanks to our witnesses for being here today. We hope your families are safe and healthy.

These are very important issues that you're raising. We cannot have a catastrophic impact on the hospitality industry, on restaurants and hotels, that will mean we will go deeper into the economic difficulties caused by COVID-19.

My first questions for Mr. Jeffrey and Mr. Oliver are around the issue of rent abatement. Other countries—France, Denmark and Australia—have provided really effective rent abatement policies. All of you have pointed out in your testimony that the system of loans just does not work. The idea that businesses should go deeper into debt isn't one that is going to mean long-term viability for the hospitality industry.

What I and Gord Johns, who is the NDP small business critic, have proposed to the government is a rent abatement program based on what is done in some of the other countries, whereby the federal government would underwrite 66% of the rent abatement. In other words, the property owner provides a rent moratorium for the small businesses in the hospitality industry, and as a result of that, the federal government underwrites two-thirds of it. There's a shared sacrifice that allows for the longer-term viability of the industry.

It means, of course, that the property owner continues to have a tenant after the crisis, and it means that the hospitality industry, the restaurant, can actually continue on. What do you think of that idea of rent abatement, with the federal government underwriting two-thirds of the cost in order to get us over this crisis and to allow restaurants to continue building their market and their businesses?

That is for Mr. Jeffrey and Mr. Oliver.

[The Chair, Liberal, Wayne Easter]

Mr. Jeffrey, do you want to go first?

[Shaun Jeffrey]

Yes. Thank you very much.

Thank you for the question. I appreciate it.

I think it really gets down to what Andrew said. At this point, we are not able to take on more debt and we are looking for immediate and 100% relief. Twenty-five per cent of restaurants are operating at zero revenue. The other 75% of them are operating at 20% of their revenue. A 66% abatement would still require a pretty significant amount of impact from the restaurant itself.

We are looking at a tough time. Restaurants are going day to day and operators are mortgaging their own homes to pay fixed costs. We need something that's going to cover at least 100% of the cost itself, I would say, and it needs to be significantly quick, because, again, May 1 is a week away.

I have the benefit of being a landlord myself, with five rental properties, and I can tell you from a landlord's perspective that we are also suffering. It comes to a point where we need immediate, significant and fast relief.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Oliver.

[Andrew Oliver]

Mr. Julian, is the other 33% the sacrifice that landlords would be asked to make so that operators would have zero rent? Is that correct?

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Yes.

[Andrew Oliver]

Then that's probably the best idea I've heard so far, quite frankly, because it does allow.... To Shaun's point, the math doesn't lie. If your revenues are zero or 20% and you have other fixed costs, there is absolutely no money to pay rent, but at the same time, rent has to be paid. If we think about what rent does, we not only pay our landlords, individuals such as Shaun, but we also support millions of pensioners and large government service pension plans, which are our largest landowners. They need to get paid. We need the ecosystem to survive.

You also have another massive problem, and we've seen it in Vancouver. Some are asking for emergency loans from the province. We pay outsized amounts of property tax in those rents, and without those being paid, you're going to create fires in every single municipality because of shortfalls in revenues.

You as government, with leadership, can impose a plan like that so that you're protecting landlords for themselves, because alternatively you'll have an utter collapse of the commercial real estate market and rents will plummet. Mortgages will not get paid and pensioners will not get their incomes, just as investors like Shaun will not. At the end of the day, that plan would work.

Paying 100% of the rent for people who have had a catastrophic loss in sales of 60%, 70%, 80% or 100% is absolutely necessary if you want to protect jobs in our industry. If you leave a portion of the rent payable by people who have no funds.... To Gabriel's point, the $6.2-million loan is not an option. I don't believe any of those loans have actually been approved or gone out, compared to those in the CEBA program. It's going to take far too long, and many people in our industry will be bankrupt before that happens. Without direct government intervention, the stats are there: More than 50% of us will not survive.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

That's—

[The Chair, Liberal, Wayne Easter]

Peter, your question will have to be quick. You can have one quick question.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks very much, Mr. Chair. Thanks, Mr. Jeffrey, and thanks, Mr. Oliver. It's 100% rent abatement, and I'm glad that you appreciate that proposal.

Mr. Lefebvre, bank interest rates haven't gone down. The credit unions have dropped their interest rates to zero, but the banks have not. People are still paying a lot of interest on their mortgages, credit cards and loans.

If the federal government exercised its right to force banks to drop their interest rates, would it make a difference?

[David Lefebvre]

I am very glad you asked that, Mr. Julian.

Restaurants Canada has been working for years to bring down credit card interest rates and interchange fees. We think we've made some strides with the government in the past few years, but now is certainly the time to do more about credit card fees, which are very costly.

More and more purchases are being made with credit cards and cash is not accepted at many establishments. It's too bad for the banks, but they have nothing to complain about. The ones who need help now are food service operators and small businesses. At Restaurants Canada, we've always had credit card fees in our crosshairs, so we are ready to tackle the issue any time.

[The Chair, Liberal, Wayne Easter]

Thank you all for that round.

Turning to the five-minute round, I'll give you the lineup. Mr. Cooper will be first, then Mr. McLeod, Mr. Cumming and Ms. Dzerowicz.

Mr. Cooper, go ahead.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you, Mr. Chair.

I'll ask my questions to whoever among Mr. Jeffrey, Mr. Oliver and Mr. Lefebvre wishes to chime in.

Obviously liquidity is a major issue for restaurants in dealing with fixed costs. One recommendation the Conservatives put forward was a refund of GST remittances that have been collected over the past 12 months, which would, it seems, put a lot of cash back into small businesses, including restaurants. It would also seem to be fairly easy to administer and deliver.

Would any of you care to comment on that policy proposal and how it might be beneficial to restaurants in Canada?

[Andrew Oliver]

At www.savehospitality.ca, my partners Eric and John and I originally came up with a plan, before some of these other announcements like the rent relief program, in which we were asking for 10% of last year's sales. We did it specifically, Mr. Cooper, because it would be very easy for the banks to underwrite those forgivable loans that we asked for.

At this point, not knowing what the rental program is, and depending on how much it is and what it is, I don't know what the forgivable loan amount should be anymore until we have those details.

All of that being said, 100%, what we do need is liquidity. Our solution is a little different from yours, in that, instead of it being tied directly to what you pay in HST, which can be a little challenging given the differences among all the provinces and territories, we went out and did intensive modelling, from businesses that do under a million dollars in sales up to restaurants that do $10 million-plus in sales, and said, “Look, we're a fixed cost. The industry is the industry, and the numbers are quite similar.”

We 100% support having a forgivable loan program tied to your sales to allow you to have confidence that the government will be there to allow you to bring back every single one of your employees and give you the capital and the support you need to ensure that those jobs continue, that those people come off of government assistance, and that they continue to then become one of the largest tax bases in the country.

[The Chair, Liberal, Wayne Easter]

Mr. Lefebvre.

[David Lefebvre]

Thanks for your question, Mr. Cooper.

It is definitely something that Restaurants Canada is looking at in terms of tax relief, the GST and the HST. Our understanding of the tax laws is that this would be easier moving forward because, technically, as soon as a sale is done the tax is owed to government. They allow you to keep it for a month, a quarter or a year, just to remove the administrative burden. However, a mechanism that would give a subsidy or something to operators based on sales, which could be the equivalent of something like GST and HST, is definitely something that would provide some relief.

The cash flow question that you mentioned is absolutely critical and will make a difference in terms of whether some people stay in business or not. It is critical, and I think you understand very well the cash flow implication of this, not only during emergency measures but also moving forward in a transition to a full recovery.

[The Chair, Liberal, Wayne Easter]

Mr. Jeffrey, did you want to add anything to that, or are you okay?

[Shaun Jeffrey]

Again, to reiterate what Mr. Oliver just said, any assistance is obviously very beneficial, but this assistance needs to come in a timely manner.

I think it's very key to say “timely manner” because when you talk about the liquid and fixed costs of the restaurant industry, we're hurting now. To have a program implemented in a four- to six-week period means we're not going to make it to that point. We need these programs to be implemented in a timely manner and for those funds to be flowing to operators as soon as possible.

[The Chair, Liberal, Wayne Easter]

Mr. Cooper, you have a limited time. Go ahead.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

I'll just ask in general terms, to the same witnesses or whoever wishes to answer, how they envision a rollout of getting restaurants up and running, and the timeline they see for that to happen.

As we see in the United States, many states, and the restaurants in those states, are starting to reopen, with a number of measures to protect public safety. Obviously, restaurants can't stay shut down forever, and every day that this goes on more and more restaurants are shutting down as we speak.

Maybe you could speak to that with some ideas and perhaps a timeline.

[The Chair, Liberal, Wayne Easter]

Who wants to take it?

We'll go to Mr. Lefebvre, then Mr. Jeffrey, and we'll have to end there.