Finance Committee on April 23rd, 2020

[The Chair, Liberal, Wayne Easter]

We'll turn now to the Canadian Federation of Canadian Business.

Dan Kelly, go ahead. The floor is yours.

[Daniel Kelly, President and Chief Executive Officer, Canadian Federation of Independent Business]

Thank you, everyone. It's great to be back with the finance committee this afternoon.

The situation for small and medium-sized firms across Canada continues to be incredibly rough, some of the most challenging things I've ever heard from entrepreneurs. Our helpline at CFIB is getting 800 calls a day from our members—

[The Chair, Liberal, Wayne Easter]

Dan, I hate to interrupt but I'm getting spotty remarks. Do you want to try it again and speak as close to your microphone and as slowly as you can? Otherwise we'll get the technicians to fix it and go to the next witness for the time being.

[Daniel Kelly]

Let me speak a little slower and louder. It seems to be a bit better. I see some nodding heads. That's good news.

The situation for small companies across Canada continues to be incredibly challenging. We are now up to about 800 to 1,000 calls per day from our members across the country. Many of them are business owners who just don't know where to turn. Some of them, fortunately, are in a position of being helped by some of the programs that government has announced and I'm bringing some recommendations on how those programs can be improved.

I sent a deck that you should all have in front of you of some new data from CFIB. We have done a survey of our members every weekend, and we're going to do it again this weekend. On each survey we have between 10,000 and 12,000 respondents who outline the impact that COVID-19 and the economic emergency is having on them and [Technical difficulty—Editor] recommendations on the various support programs that are out there.

Right now, only 21% of businesses across Canada are open, and 80% of small and medium-sized firms across Canada are closed either completely or partially closed. Of course, in some provinces, it's even well below 20% today, which is very worrisome news, as restrictions from [Technical difficulty—Editor] continue.

When we talk to our members about what's happening from a sales perspective, over half of our members, 55%, have seen their sales drop by 50% or more. That's incredibly alarming, in our view, because many of them are just not able to keep their doors open even if they are technically allowed to open.

One of the most worrisome statistics that we should all be thinking of is that half of small businesses have said to us that if current—

[The Clerk]

I'm sorry, Mr. Chair, but the interpreters in the room cannot translate at the moment. We have some technical issues.

It may be better to have an IT ambassador call you, Mr. Kelly, and then maybe we could have you speak once more.

[The Chair, Liberal, Wayne Easter]

We'll suspend where you are, Dan, on your presentation. We'll come back to you. Technicians will talk to you in the meantime to see if we can sort that out.

We'll turn then to the Canadian Pork Council, Rick Bergmann and René Roy.

Go ahead.

[Rick Bergmann, President of the Board, Canadian Pork Council]

Good afternoon. My name is Rick Bergmann. I'd like to thank you for the opportunity to appear before the standing committee and provide the perspectives of the Canadian Pork Council and producers on the government's response to the COVID-19 pandemic.

As I mentioned, my name is Rick Bergmann. I'm a pork producer in Manitoba and the chair of the Canadian Pork Council. I'm joined here by René Roy, first vice-chair and pork producer from Quebec.

The Canadian Pork Council represents the views of Canada's 7,000 hog farmers, hog producers. Before I get too far into this, I want to let you know that there's a significant amount of hurt happening right now in our sector, and COVID-19 has made a bad situation worse for all of the producers here.

I'd like to remind the group this afternoon that the direct farm gate sales of Canadian pork in 2016 totalled over $4.1 billion and created over 100,000 jobs. COVID-19 has put the pork sector in a free fall by disrupting supply chains and driving down the prices of hogs. The risk of major market failure increases as the pandemic drags on, and that's a huge, dark cloud over our heads.

COVID-19 has quickly pushed many farms into a cash crisis from which they won't be able to cover the costs of operating their businesses. It's important to remember what our business really is. We're feeding people, plain and simple. We raise pigs to create a safe, high-quality protein Canadians can rely on to feed their families. That's what we are all about.

As a result of this price decline, hog farmers are now losing money on every animal they market. On average, producers stand to lose $30 to $50 per pig they sell in 2020. That doesn't maybe sound like a lot, but once you add the numbers up, it's overwhelming. The impact of this scenario on the farmers' financial and mental health really cannot be understated.

I certainly appreciate the magnitude of this crisis and the number of issues the government has to deal with. It's enormous; it's daunting. On numerous occasions our government has talked about support to farmers and the food sector, but really, little has been done to help us weather the storm, and that's why we're here this afternoon. Our producers need government to take immediate action so that they can continue to pay their bills, feed their animals, keep their family businesses alive and continue producing food. We now need our government to help us in this very significant crisis. We cannot let the industry fall by the wayside because of federal and provincial governments' inaction. We all deserve better.

On some farms right now, they're very distraught with the things going on. In the Maritimes we had a farm that needed to euthanize animals that were ready for slaughter, so animals that were 270 pounds were euthanized, and they would be found to be put in a landfill. It's a tragic, horrific event that producers are going through.

In other parts of the region, they're struggling to find homes for them, as you know what has happened with some processing plants because of the COVID virus. In the province where I'm from, we have producers aborting sows. We have producers euthanizing little piglets, and that's of grave concern. At this very point in time, it's a significant crisis. Again, without our government's help, the future of the pork family farm is looking very bleak. I'll stop there.

I'd like to thank the committee for the invitation to appear before you today and for your attention, and I look forward to answering any questions that René and I could answer.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Rick. I'm well aware of those euthanized hogs. They're in my riding.

We'll now go to Sentiom Incorporated, with Mathieu Lachaîne, chief technical officer.

Mathieu.

[Mathieu Lachaîne, Chief Technical Officer, Sentiom Inc.]

Good afternoon. Thank you for inviting me.

I've always been an entrepreneur. I started my first business before I turned 18, and I'm now on my seventh. I've had my share of success, selling two companies that continue to operate. They created dozens of jobs. One of the companies did pandemic planning and provided relevant training. It even prepared a plan for the health department after the SARS outbreak. I've also experienced failure, losing millions of dollars.

Throughout my career, I've had the privilege of participating in a number of venture accelerators, including a program delivered by FounderFuel and the TECH program at the École d'Entrepreneurship de Beauce. I've also been part of a number of entrepreneurial groups. I consulted those stakeholders in preparing for my appearance here today in order to share with you the reality on the ground.

Last year, I started a new tech company. We are growing fast. After being in business for a few months, we've put nine people to work and placed orders with around 10 other companies. In 2019, we had $375,000 in revenues, just to give you an idea. This year, after just three months, we will hit $1.2 million if we're able to deliver on the contracts already signed and complete those sales.

We have two divisions. One is focused on professional services. Since we saw the crisis coming, we worked very hard to diversify our services and increase sales on that end. Consequently, our revenues have gone up every month. Our other division is product-based. We developed a technology for smart multi-dwelling buildings to minimize their environmental impact. In terms of research and development, the division is working on a solution to help seniors remain independent so that they can stay at home longer. The crisis has brought the division to a complete halt.

It was working on its first sale, the most significant for the entire company. We can't manufacture or install our equipment for clients. We have tens of thousands of dollars in inventory that we can't use up. We have to double our working capital because we were supposed to carry out the first phase, receive payment and, then, place orders in order to carry out the second phase. We have to do it all at the same time.

What's worse is that we can't make any sales. The seasonal nature of our meetings with industry clients has delayed product deployment by months. The technology was tailor-made for the export market. New York alone accounts for more than 10% of our North American market. The technology could make emerging from the crisis easier by making it possible for maintenance staff to work remotely.

An average sale of this technology represents hundreds of thousands of dollars. Our supply chain is wholly based in Quebec. We anticipate creating a dozen or so direct jobs within the next 18 months, not to mention indirect manufacturing jobs, if we are allowed to move forward with our activities. However, the wage subsidy program isn't accessible to us because our professional services division, which employs just three people, increased its billing. We aren't the only ones. A number of my colleagues are in the same boat: they have two divisions and aren't eligible for the subsidy.

In the technology sector, employees need such specialized skills that they can't usually move from one division to another, given how different the skills are. What's more, many of us start-ups don't qualify for the other programs, including the work-sharing measure or the Business Development Bank of Canada loans, because we haven't been around for two years.

According to the start-up barometer, more than 37% of start-ups don't qualify for the programs that were introduced. That amounts to thousands of businesses. We also have an experimental development tax credit of $150,000, but we haven't heard anything about it for months. The only measure we are eligible for is the $40,000 loan.

Our product division employs six people, and of those, we had to lay off two full-time employees and cut the hours of our part-time employees. We know that, after any recession, the introduction of computer systems and automation will carry on as the economy recovers. Our fear is that we will lose these employees and miss our window of opportunity.

In my humble opinion, the wage subsidy program announced but not yet in effect is corporate welfare, since it pays people to change nothing and penalizes them if they pivot their businesses with success. Any business that makes more than 70% will lose all the subsidy. It is counterproductive to economic recovery.

Programs don't work. They're not deploying capital effectively or efficiently. They are lengthy. In the last month, instead of working on pivoting their businesses, entrepreneurs have been working non-stop trying to understand, fit into and apply to all the different programs, with a lot of paperwork and much time wasted that could have been invested in growth, not to mention the mental health issues and incredible stress because we feel responsible for our employees' incomes.

What we need is a simple solution. It is beyond me why we haven't used the existing mechanisms, like our payroll remittances, GST reports and the direct deposit system with the CRA, and let everyone apply a 75% credit on their next payroll by themselves, a credit that would go down predictively every month to give us time and an incentive to pivot our businesses. Those who do not really need it would simply be taxed retroactively at the end of the year.

As a country, we must accept change. We have entered a new, low-touch economy for up to two years, and two years means that habits are going to stick. As a country, we must collectively accept this worst-case scenario and pivot toward it now.

Right now, the businesses that can help us the most toward a quick recovery and future growth, information technology and clean tech, are suffering the most because of their start-up or quick growth status. I often hear politicians talking about how they created jobs. This is not the reality. Small and medium businesses make the backbone of our economy, 90%. Entrepreneurs create the jobs.

The role of the government is to reduce uncertainty in the market. Right now, it's doing a terrible job. The plethora of programs, their inadequacies and loopholes are just creating more uncertainty over COVID-19.

The second simple measure for recovery that you should put in place immediately is a universal basic income. Right now, the $2,000-a-month program is also welfare. If you work, you're penalized. The solution is to reduce the risk for every Canadian to become an entrepreneur. This measure would also apply to start-up founders and solopreneurs. It would also cover gig workers. It would enable all of us to focus not on paperwork, nor on trying to fit into the system.

As entrepreneurs, we need fundamental government action now, and we need much more certainty about what we can work with in the upcoming years. What we want to focus on is what we do best, putting citizens back to work and growing our economy.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Before I turn back to see if Dan Kelly can finish his presentation, I'll go through the list of MPs for the first round.

John Barlow will be up for a six-minute round, and then Mr. Fragiskatos, Mr. Ste-Marie, and Mr. Julian.

Dan, are you available? I don't see you on my screen, but do you want to come on again and finish where you left off?

[Daniel Kelly]

Sure. Can you hear me, Chair?

[The Chair, Liberal, Wayne Easter]

Yes, we can hear you. Go ahead.

[Daniel Kelly]

Good. I grabbed my son's gaming headset. Let me give this a try.

Thanks again, everyone. I'll pick up where I left off.

The most worrisome statistic in all the research we have been collecting weekly at CFIB is about how long businesses have before they are facing bankruptcy or before the COVID-19 disaster will take them out.

What we've shown is that over 50% of small firms are telling us that if the current level of restrictions lasts until the end of May, their business will not survive. That's how dire the situation is for many small companies as they look forward.

There are some signs that over the month of May some provinces may begin to lift some of the restrictions, but unfortunately, right now, they are few and far between. Some of the issues of course [Technical difficulty—Editor].

[The Chair, Liberal, Wayne Easter]

We're losing you, Dan. Your mike is on mute right now, I see. Do you want to try again?

[Daniel Kelly]

Are you able to hear me, Chair?

[The Chair, Liberal, Wayne Easter]

We can hear you now again.

[Daniel Kelly]

My apologies.

All right. Let me continue until we give up here.

Of course, we are encouraged by some of the programs the government has put in place. The number one concern of our members, of course, is their wage bill, the top expense for small business owners. We are, of course, encouraged that as of Monday businesses can start to apply for the Canada emergency wage subsidy. That is good news. Also, the bank accounts, the emergency business accounts, have added a second positive tool.

We are most encouraged that there are ongoing discussions between the federal government and the provinces for a substantive subsidy to help pay for commercial rent.

On slide 6, I share with you that 70% of small firms rent their locations and pay rent each month, but many are worried about their ability to pay. Fifty-five per cent have said they do not have the funds to pay their rent for the month of May, but they are encouraged that government is looking to step in and help them with these costs. Remember, businesses have been ordered to shut down to protect society, and it is deeply unfair that they would have to pick up the costs of keeping real estate open and paying those bills while they are essentially unable to earn an income. Many of our members are saying that the government really does need to make sure the rent relief would provide forgiveness, not just loans or deferrals, for their rent.

Moving to CEBA, the changes the government recently made to allow businesses between $20,000 and $1.5 million are positive steps, but 20% of businesses remain ineligible for the CEBA in several categories. I'll share more about that in just a second.

In terms of the recommendations we are making about the major programs right now, with respect to the wage subsidy we want to make sure there is flexibility for firms that fall short of the revenue test—that 15% or 30% revenue test—to make sure they don't lose the full 75% subsidy. I agree strongly with the earlier speaker that a universal subsidy would not cause business owners to be worried about whether or not they're going to hit the subsidy and would help them focus on keeping their employees rather than trying to artificially find ways to ensure they get the subsidy, or perhaps focus their attention on that rather than on growing their businesses as much as they possibly can.

The government has put in place a payroll tax rebate for staff, which is welcome news, so if you're using the wage subsidy for staff who [Technical difficulty—Editor], you will no longer have to pay EI and CPP or you can get a rebate on those dollars. We're asking for that to be expanded to all firms, not just those that have staff on furlough.

We also believe that government should be considering extending the wage subsidy beyond June 2. There are so many businesses in tourism and other key sectors that will be able to use this if it continues during what might be a rocky summer season ahead.

We also want to make sure the government clarifies that it won't be the responsibility of employers to go after employees who are using CERB or employment insurance, and that the government will take that responsibility and not require employers to do it.

With respect to CEBA, the loan program, the groups that are excluded right now include family businesses that pay dividends only. We had a speaker earlier talk about just that. Most of those who use contract workers, for example gyms, or those businesses that rent chairs to other parties, like hair salons, are excluded from benefiting from the CEBA program—a very positive one.

We also want to make sure that this program allows access to new firms. There was an extension made to the wage subsidy for newer firms that has not been provided for CEBA. We're suggesting that if you can demonstrate $1,700 in payroll for January or February, you should be allowed access to the program. For those other sectors that I mentioned, we should allow businesses paying dividends or contract wages or having rental chair income to use that to satisfy the payroll test, to allow them access.

We're asking government to [Technical Difficulty—Editor] into May, or potentially June, God forbid, and that governments look to ensure they expand the amount of the CEBA loan and expand the amount of the loan forgiveness that comes along with it.

Finally, as we look forward to a successful rent subsidy, we are urging the federal government and the provinces to ensure that something is in place before May 1 [Technical difficulty—Editor].

[The Chair, Liberal, Wayne Easter]

We lost you, Dan. You were just about to conclude.

[Daniel Kelly]

Yes. I need 30 seconds.

[The Chair, Liberal, Wayne Easter]

Okay.

[Daniel Kelly]

We want to make sure that the program is substantive and doesn't just defer rent but eliminates rent or covers at least 75% of it. It should broadly cover all SMEs, with no exceptions based on their structure or their payroll, and cover the full COVID-19 emergency phase to help them with the reopening.

Those are some of our recommendations on the rent side of the equation. I'm happy to take questions about any of our suggestions.

[The Chair, Liberal, Wayne Easter]

Thank you, all, for your presentations.

We will quickly get into the rounds. The first round is six minutes, and we'll start with John Barlow.

Go ahead, John.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

It's a pleasure to be here with this great panel of witnesses.

Bob, Dennis, Rick and René, I appreciate your insight on the impact COVID is having on your sectors.

The thing I am hearing most from producers is that they do not qualify for any of the existing programs, whether that's CEBA or the wage subsidy. What we are missing is a program geared specifically to the unique financial structures and timeliness of agriculture. That has not been placed on the table, and even with Farm Credit Canada credit, unless you are a Farm Credit Canada client, you do not qualify for those programs. One pork producer in my riding named Rick said that even if he could qualify for the $40,000, that's about two days of feed for him at the most.

Bob and Rick, I only have six minutes, so try to keep your answers concise. Are we missing programs that are geared specifically to agriculture?

[Bob Lowe]

John, it's good to see you here.

That would help. If they took out the thresholds and eliminated the narrow little guidelines, some of these programs would work, CEBA being one. The payroll requirement is between $20,000 and $1.5 million, and if you're at the $1.5-million mark, $40,000 is almost zero.

You talked about a pig producer and said that's two days of feed. That would be about 0.4% of the feed that we use in a day, so it's kind of silly. If you're at the $20,000 end of the wage limit, it's still not that big a deal; it just doesn't help. Actually, it's $10,000 and not $40,000, because you have to pay back $30,000 of it.

It just doesn't really amount to anything with the scale of agriculture today.

[John Barlow, Conservative, Foothills, AB]

Rick, did you want to add anything?